Income Investment Trusts - are these the times they (relatively...) shine?

[bluedonkey]

Tik,

I think you've summed it up well.

BD

[Itsallaguess]

At the start of this thread, I asked this question for those seeking regular income from High Yield Investment Trusts -

"Is this the time for Investment Trust income-reserves to come into play?"

To help answer that, I thought it might be worth keeping track of a few categories of popular income-related Investment Trusts, and seeing how their full-year dividend payouts might be affected from their last reporting period to the next full one.

Given that there seems to be many UK-market single-company shares reducing or cutting their dividends at this time, with some doing so from a self-interested perspective, and with some being 'influenced' to do so by a number of UK regulatory bodies, I thought the first category of income-related Investment Trusts that would be interesting to track would be the 'UK Equity Income segment' as defined by the AIC.

I've taken a broad sample of income-Investment Trusts from the 'UK Equity Income' section of my April 2020 AIC-data thread (https://www.lemonfool.co.uk/viewtopic.php?f=31&t=22720), and have compiled some dividend information from their last set of full-year results, to help us compare the ongoing dividend announcements as we move forward through this difficult economic period -




Initially, I just want to capture the above dividend information here, so we can come back to it for comparison purposes at some future point in time, but my ongoing plan with the above table is also to further enhance it with quarterly or half-yearly dividend information for each entry, so that we can also monitor comparable interim-dividend payments as that data becomes available, rather than just looking at the full-year payouts...

Cheers,

Itsallaguess

[monabri]

Let's throw in some "foreigners"

Murray International (MYI) (12p+12p+12p+17.5p) = 53.5p

Henderson Far East (HFEL) (5.7p + 5.7p + 5.7p + TBA) = 22.8p ( assuming cut to TBA)

[AJC5001]

To help answer that, I thought it might be worth keeping track of a few categories of popular income-related Investment Trusts, and seeing how their full-year dividend payouts might be affected from their last reporting period to the next full one.
Itsallaguess

Most of those are in one of Luni's baskets - either seven or eight, as is Murray International MYI

Perhaps including the rest may be worthwhile?

Adrian

[Itsallaguess]

Let's throw in some "foreigners"

Most of those are in one of Luni's baskets - either seven or eight, as is Murray International MYI

Perhaps including the rest may be worthwhile?

Thanks both, and I do plan to expand this and cover some of the other AIC sectors separately, which was what I was trying to point out when I said this in my previous post -

'I thought the first category of income-related Investment Trusts that would be interesting to track would be the UK Equity Income segment'..

Cheers,

Itsallaguess

[Itsallaguess]

Final results released from Dunedin Income Growth (DIG) this morning, which is captured in the above 'UK Equity Income' table, and with some welcome news on their final dividend -

The Company has paid three quarterly dividends of 3.0p per share, following changes we made in the last financial year to distribute income more evenly throughout the year. We are declaring a fourth interim dividend of 3.7p per share, payable on 29 May 2020 to shareholders on the register on 11 May 2020. This will make a total dividend of 12.7p per share for the year, an increase of 2.0% on last year and slightly ahead of the rate of inflation. This will be the 36th year out of the past 40 that the Company has grown its dividend, with the distribution maintained in the other four years.

Once the fourth interim dividend has been paid, this will utilise 0.60p of the Company's revenue reserves (equating to approximately 5% of the reserve) leaving a further 10.94p per share to support future distributions, representing 86% of the current annual dividend cost. This is a level which, we believe, well supports your company's financial position.

https://www.investegate.co.uk/dunedin-inc-growth--dig-/rns/annual-financial-report/202004090700032784J/

Far too early, of course, to predict any longer-term impact of the current dividend issues seen in some of their underlying holdings, but the above is welcome news nonetheless, given the large UK-focus of this income Investment Trust..

Cheers,

Itsallaguess

[Dod101]

Where are these reserves - what do they in actual fact consist of? How are they separated from the rest of the business? Is there a ring-fence? Cash with a bank? Gold? Bonds? Or are they just on paper? Real or chimerical?

I don't suppose we are going to get any further with this,

If you look back over the previous couple of pages of posts I think you should find that everything you're asking has already been answered. Maybe take another read.

But, again, a (final!) quick summary:
- companies pay divis out of what are called 'distributable reserves';
- for ITs, which are a special type of company, the 'capital reserve' and 'revenue reserve' comprise the distributable reserves;
- 'capital reserve' (accumulated, as-yet undistributed profits from asset sales) and 'revenue reserve' (accumulated, as yet-undistributed income received) are just accounting terms for items appearing on the balance sheet, see up-thread for more explanation of them;
- they are not a description of segregated parts of an IT's underlying investment portfolio;
- the balance sheet (including these reserve entries) is not describing the make-up the IT's underlying investment portfolio.

This latter point may well be the essence of confusion about these 'reserves', with people perhaps making an assumption about what they are and not realising the specific accounting meaning.

If this is still all gobbledegook then don't worry about it!

For the resident accountants, feel free to correct the above - look at the time! I'm out of here

That is correct except that you could have added the word 'realised' in front of capital reserves to distinguish them from Unrealised Capital Reserves which are not distributable.

To keep it simple, ITs do not indulge in 'jam jar' accounting as a friend of mine says, where there are a range of jam jars on the mantle piece each containing amounts of money, one for the electricity, one for the coalman, and so on.

Investors as a body ought to be given a crash course in double entry book keeping and then a spell as a book keeper/treasurer of a not too complex enterprise. They would then have an appreciation of how cash management works and books are kept and what the various entries mean.

Dod

[tikunetih]

Investors as a body ought to be given a crash course in double entry book keeping and then a spell as a book keeper/treasurer of a not too complex enterprise. They would then have an appreciation of how cash management works and books are kept and what the various entries mean.

I agree 100%.

I was lucky to start life as an audit trainee, before finding it too exciting and heading off in a different direction. But it gave me the "crash course", even if I did eventually forgot much of what I'd learned.

For investors lacking accounting knowledge or an understanding of the principles, I'd recommend reading Anthony Rice's Accounts Demystified
https://www.amazon.co.uk/Accounts-Demys ... 292084847/

This is an absolutely superb book that explains the fundamental principles in a very straightforward way. It's even interesting to read, which is some achievement.

[bluedonkey]

As I said (somewhere), it's the term "reserve" that confuses non-accountants.

[Charlottesquare]

Investors as a body ought to be given a crash course in double entry book keeping and then a spell as a book keeper/treasurer of a not too complex enterprise. They would then have an appreciation of how cash management works and books are kept and what the various entries mean.

I agree 100%.

I was lucky to start life as an audit trainee, before finding it too exciting and heading off in a different direction. But it gave me the "crash course", even if I did eventually forgot much of what I'd learned.

For investors lacking accounting knowledge or an understanding of the principles, I'd recommend reading Anthony Rice's Accounts Demystified
https://www.amazon.co.uk/Accounts-Demys ... 292084847/

This is an absolutely superb book that explains the fundamental principles in a very straightforward way. It's even interesting to read, which is some achievement.

Or just learn and understand that there are five types of accounts, income, expenses, assets, liabilities, capital, and that two things can happen to each of them, a debit or a credit.

When I started I had a little card I carried with me that had the nominal types down the left side and two columns, Debit and Credit, and re each category whether the debit or credit was an increase or a decrease to the account type .

That and remembering that every debit has a credit is frankly all you need (well that and the rule of 9)

[Charlottesquare]

As I said (somewhere), it's the term "reserve" that confuses non-accountants.

Yes, it tends by some to get confused with a sinking fund .

[Itsallaguess]

Income Investment Trust dividend-comparison table (current figures taken from last full-year results) now updated to also include Global Equity Income and Asia Pacific Income samples -



I plan to include the 'North America' sector on my next update.

Cheers,

Itsallaguess

[Itsallaguess]

Income Investment Trust dividend-comparison table (current figures taken from last full-year results) now updated to also include some North America and Renewable Energy Infrastructure samples -



The abive table is still ongoing, and I'll probably add some more areas to try to get as broad a picture as possible from the various income-IT sectors with regards to their dividend-stability during this period.

Cheers,

Itsallaguess

[funduffer]

So far all my ITs' dividends are holding up well.

In the next few weeks, SAIN, DIG, BRWM, CTY and MUT are all due to pay out increased or level dividends compared to last year.

In contrast, 3 of the next 5 dividend payments in my HYP have been cancelled or postponed (HSBA, LLOY, BLAND).

I have some top-up money, but it is all heading to IT's at the moment - probably MUT.

FD

[88V8]

There's a lot to be said for ITs in terms of stability, and presently in many cases we don't even have to settle for low yields.

Been buying CTY, MUT altho not so much, MRCH, HFEL.
At the moment I don't plan to buy more widely than those four, I have a feeling that it could lead to what Luni might have dubbed mediocritisation.

V8

[dundas666]

There's a lot to be said for ITs in terms of stability, and presently in many cases we don't even have to settle for low yields.

Off the top of your head, historically how much lower have 'income' IT yields been than a typical HYP?

[Dod101]

Just sold some of my Scottish Mortgage and bought 3i Infrastructure with the proceeds. SMT slightly up on opening and 3i slightly down, so in my favour and will produce a modest increase in income I expect.

Dod

[Charlottesquare]

There's a lot to be said for ITs in terms of stability, and presently in many cases we don't even have to settle for low yields.

Off the top of your head, historically how much lower have 'income' IT yields been than a typical HYP?

Not sure how typical my HYP shares or my ITs were, but the shares used to yield an average around 5% and the ITs an average around 4%.

[dundas666]

There's a lot to be said for ITs in terms of stability, and presently in many cases we don't even have to settle for low yields.

Off the top of your head, historically how much lower have 'income' IT yields been than a typical HYP?

Not sure how typical my HYP shares or my ITs were, but the shares used to yield an average around 5% and the ITs an average around 4%.

Thanks Charlottesquare, that's very useful to know.

(Btw I used to work around the corner from Charlotte Square in Edinburgh - is that where your moniker originates?)

[Arborbridge]

There's a lot to be said for ITs in terms of stability, and presently in many cases we don't even have to settle for low yields.

Off the top of your head, historically how much lower have 'income' IT yields been than a typical HYP?

The forecast yield on my HYP as of today, taking account cancelled dividends, is 5.3%. You can certainly find many ITs of various colours yielding as much or more on a historic basis - how long they will maintain it is another story, but the same can be said of my forecast yield.

Arb.