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Cancelled Dividends

General discussions about equity high-yield income strategies
Wizard
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Re: Cancelled Dividends

#320417

Postby Wizard » June 22nd, 2020, 11:41 am

OwenSwansea wrote:Arborbridge,
Don’t you think that double taxation is wrong in principle?

Owen.

Ultimately the company belongs to the shareholders, so they pay taxes paid by the company and directly as a shareholder. So a tax authority could chose to apply a lower level of tax on a company, but then to tax dividends. We see that as double taxation, but that is only because we assume that if the tax on dividends were cut the tax on company profits would not be increased. But by splitting the tax payable into two parts the tax authority can charge the company less tax on profits and the shareholder more tax on dividends as a way of encouraging the retension and reinvestment of earnings.

Not saying that is what is happening in the UK, but theoretically splitting the total tax take does give the tax authority more options.

Moderator Message:
Chaps, let's not digress too far into the equity or otherwise of the tax system, which is a bit off-topic for the OP's original question. -- MDW1954

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Re: Cancelled Dividends

#321556

Postby 1nvest » June 25th, 2020, 8:59 pm

Alaric wrote:Faced with cancelled dividends, what should an investor looking for drawdown income do?

Options would seem to include doing nothing, sitting on cash waiting for more normal circumstances to return.
Otherwise shares with cancelled dividends could be ruled out entirely, or should they be bought anyway as a speculation on recovery?
Buying ITs or overseas shares is also an option.

Some may hold cash reserves specifically for such times. Saved 25x spending before having entered drawdown/retirement (anticipate a 4% withdrawal rate), mindful that dividends could halve for perhaps a handful of years, so drop 10% into cash, rest into stock (90/10 stock/cash asset allocation) and call upon those cash reserves during such dividends down years to supplement (reduced) dividends (replenish cash reserves in later/better years). Others sell down capital during such times - which others might say is selling low, but you have the choice to reduce either the best performer(s) (which is a form of rebalancing the individuals partially back towards equal weightings); Or sell (reduce) losers, let winners run philosophy. Selling down losers, running winner has the tendency to increase tilt (even more final portfolio value being weighted into the asset that performed the best). Selling down winners tends to keep the portfolio more towards equal weightings (less concentration risk). Holding some cash acts as a drag factor. There are pros and cons to each choice (I did try to discuss such over on the HYP-P board/section, but had my post pulled, and have no intent to re-type the details).

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Re: Cancelled Dividends

#321592

Postby MDW1954 » June 25th, 2020, 10:11 pm

Moderator Message:
1nvest wrote:(I did try to discuss such over on the HYP-P board/section, but had my post pulled, and have no intent to re-type the details).


Speaking as a moderator, if that post was outside the HYP guidelines, then you shouldn't really have been surprised.

But you are of course welcome to post them somewhere more appropriate. If you give me a few clues as to when you posted them, and on what thread, I will attempt to retrieve them and send them to you via PM, so that you don't have to re-type them. How about that? --MDW1954

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Re: Cancelled Dividends

#321607

Postby midgesgalore » June 25th, 2020, 10:58 pm

1nvest wrote:
Alaric wrote:Faced with cancelled dividends, what should an investor looking for drawdown income do?

Options would seem to include doing nothing, sitting on cash waiting for more normal circumstances to return.
Otherwise shares with cancelled dividends could be ruled out entirely, or should they be bought anyway as a speculation on recovery?
Buying ITs or overseas shares is also an option.

Some may hold cash reserves specifically for such times. Saved 25x spending before having entered drawdown/retirement (anticipate a 4% withdrawal rate), mindful that dividends could halve for perhaps a handful of years, so drop 10% into cash, rest into stock (90/10 stock/cash asset allocation) and call upon those cash reserves during such dividends down years to supplement (reduced) dividends (replenish cash reserves in later/better years). Others sell down capital during such times - which others might say is selling low, but you have the choice to reduce either the best performer(s) (which is a form of rebalancing the individuals partially back towards equal weightings); Or sell (reduce) losers, let winners run philosophy. Selling down losers, running winner has the tendency to increase tilt (even more final portfolio value being weighted into the asset that performed the best). Selling down winners tends to keep the portfolio more towards equal weightings (less concentration risk). Holding some cash acts as a drag factor. There are pros and cons to each choice (I did try to discuss such over on the HYP-P board/section, but had my post pulled, and have no intent to re-type the details).


All of the above is true 1nvest which is why with my pension I hold a good 4 to 5 years of cash, thanks to Arborbridge's good work.
Not so in my ISA which is 95% invested.
Yes cash is an investment drag but you are never a distressed seller. If I was pulling on my pension these last few months it would have hurt a good deal more. Since I had other distractions I didn't sell the exposed investments in the lead-up to the sell off where, like many others, I probably would have.

Answering Alaric's question, I am holding onto cash & dividends until I feel sure the other risks of second (and further) waves of coronavirus are understood, with containment strategies in place, and also the other brexit deals are understood - unless an opportunity slaps me across the face :shock:

Sounds like I am holding cash for the forseeable :roll:

midgesgalore

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Re: Cancelled Dividends

#321650

Postby Arborbridge » June 26th, 2020, 8:32 am

1nvest wrote:Others sell down capital during such times - which others might say is selling low, but you have the choice to reduce either the best performer(s) (which is a form of rebalancing the individuals partially back towards equal weightings); Or sell (reduce) losers, let winners run philosophy. Selling down losers, running winner has the tendency to increase tilt (even more final portfolio value being weighted into the asset that performed the best). Selling down winners tends to keep the portfolio more towards equal weightings (less concentration risk). Holding some cash acts as a drag factor. There are pros and cons to each choice (I did try to discuss such over on the HYP-P board/section, but had my post pulled, and have no intent to re-type the details).


Actually, we've discussed these things many times over the years on HYP-P - not focussed on alternative investments, admittedly - but what one can do to mitigate a downturn has come up quite a few times. Now it's here, so whatever measures we have put in place will be tested. For those who haven't reached the stage of pension withdrawal the case is rather different, but for those withdrawing it's a bit late to be worrying about it!

By all means, come and discuss your mitigation ideas for use when HYPing - you could even have tangential references to other investments, provided it is a passing reference rather than an essay ;) To misquote Fawlty: "I mentioned it once and think I got away with it".

Arb

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Re: Cancelled Dividends

#321660

Postby Alaric » June 26th, 2020, 8:50 am

Arborbridge wrote:By all means, come and discuss your mitigation ideas for use when HYPing


I suspect he would wish to discuss investment for drawdown income. That's a general topic where the restrictive rules implied by the term "HYPing" don't apply.

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Re: Cancelled Dividends

#321673

Postby Arborbridge » June 26th, 2020, 9:29 am

Alaric wrote:
Arborbridge wrote:By all means, come and discuss your mitigation ideas for use when HYPing


I suspect he would wish to discuss investment for drawdown income. That's a general topic where the restrictive rules implied by the term "HYPing" don't apply.


Yes, well in that case, it's understandable that there are better places for discussion. If he wants to discuss something at length which is definitely not HYP, it would seem the wrong place to post. And it might well be that this board isn't appropriate either if his ideas are not HY in general.

It could be simple, but people like to make it hard.


Arb.

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Re: Cancelled Dividends

#322927

Postby Alaric » July 1st, 2020, 11:01 am

There's recent evidence of the effect of cancelled dividends from VUKE (Vanguard FTSE 100 ETF).

The distribution for the most recent quarter was £ 0.100057 at an xd date of 11th June 2020. That's down from £ 0.377945 at 26th March and £ 0.437748 a year ago at 27th June 2019.

Source
https://www.vanguardinvestor.co.uk/inve ... tributions

Dod101
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Re: Cancelled Dividends

#322934

Postby Dod101 » July 1st, 2020, 11:26 am

Alaric wrote:There's recent evidence of the effect of cancelled dividends from VUKE (Vanguard FTSE 100 ETF).

The distribution for the most recent quarter was £ 0.100057 at an xd date of 11th June 2020. That's down from £ 0.377945 at 26th March and £ 0.437748 a year ago at 27th June 2019.

Source
https://www.vanguardinvestor.co.uk/inve ... tributions


That cannot be a surprise to anyone who holds this. Buy the market exposure and that is what you get but it just shows the effect and extent of the dividend cuts. Quite staggering.

Dod

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Re: Cancelled Dividends

#322944

Postby Arborbridge » July 1st, 2020, 12:00 pm

Alaric wrote:There's recent evidence of the effect of cancelled dividends from VUKE (Vanguard FTSE 100 ETF).

The distribution for the most recent quarter was £ 0.100057 at an xd date of 11th June 2020. That's down from £ 0.377945 at 26th March and £ 0.437748 a year ago at 27th June 2019.

Source
https://www.vanguardinvestor.co.uk/inve ... tributions


Ouch, from me too! I bought VUKE not long ago thinking it might be a benchmark for my HYP or even (in time) a repository for more funds producing income without effort. Well, so far it isn't promising - although over the longer term history, VUKE has turned in a good perfomance relative to my HYP, I believe.

For the year to June 2020, the VUKE payout is 24% down on the same period in 2019. My HYP using the same measure (income per unit for 12 months to end of June)is 13.3% down.

Early days but it will be interesting to compare these with my incomeIT basket. I'll put something more detailed on HYP-P as usual.

Arb.

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Re: Cancelled Dividends

#323267

Postby Wizard » July 2nd, 2020, 1:55 pm

Recent news flow is seemingly drawing a picture of an economy being hit very hard by the impact of the Covid-19 mitigation measures, probably with thousands of small businesses not surviving and quite probably a few big ones failing as well. It is not just the UK, I fear that it is going to take a very, very long time for the global economy to recover from the actions that were (and in some cases still are being) taken. At a personal level I have had one relative made redundant already and have two friends both going through consultation (particularly bad as they are a couple who are both employed by the same company), so the consequences of the actions taken are getting uncomfortably close to home.

The cost of each live saved may well turn out to be extremely high and part of that cost will I think be in the form of depressed dividend income for many investors for years to come. Personally I see the curve being very long and very shallow once it starts to turn upwards again.

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Re: Cancelled Dividends

#323381

Postby CryptoPlankton » July 2nd, 2020, 8:12 pm

Wizard wrote:Recent news flow is seemingly drawing a picture of an economy being hit very hard by the impact of the Covid-19 mitigation measures, probably with thousands of small businesses not surviving and quite probably a few big ones failing as well. It is not just the UK, I fear that it is going to take a very, very long time for the global economy to recover from the actions that were (and in some cases still are being) taken. At a personal level I have had one relative made redundant already and have two friends both going through consultation (particularly bad as they are a couple who are both employed by the same company), so the consequences of the actions taken are getting uncomfortably close to home.

The cost of each live saved may well turn out to be extremely high and part of that cost will I think be in the form of depressed dividend income for many investors for years to come. Personally I see the curve being very long and very shallow once it starts to turn upwards again.

Glad to see you aren't reporting any deaths or serious illness to friends or family as a result of the virus. Whether or not that would have been different without the measures taken we'll never know, but personally I'm not sorry that collectively we've valued life as highly as we have. It's far easier to bounce back from a loss of income than an ICU bed...

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Re: Cancelled Dividends

#323391

Postby Wizard » July 2nd, 2020, 9:01 pm

CryptoPlankton wrote:
Wizard wrote:Recent news flow is seemingly drawing a picture of an economy being hit very hard by the impact of the Covid-19 mitigation measures, probably with thousands of small businesses not surviving and quite probably a few big ones failing as well. It is not just the UK, I fear that it is going to take a very, very long time for the global economy to recover from the actions that were (and in some cases still are being) taken. At a personal level I have had one relative made redundant already and have two friends both going through consultation (particularly bad as they are a couple who are both employed by the same company), so the consequences of the actions taken are getting uncomfortably close to home.

The cost of each live saved may well turn out to be extremely high and part of that cost will I think be in the form of depressed dividend income for many investors for years to come. Personally I see the curve being very long and very shallow once it starts to turn upwards again.

Glad to see you aren't reporting any deaths or serious illness to friends or family as a result of the virus. Whether or not that would have been different without the measures taken we'll never know, but personally I'm not sorry that collectively we've valued life as highly as we have. It's far easier to bounce back from a loss of income than an ICU bed...

I fear gets us beyond the scope of this board as we get into some rather deep philosophical territory. My point was that the economic consequences are likely to be very significant for, amongst others, those relying on dividend income.

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Re: Cancelled Dividends

#324080

Postby Wizard » July 6th, 2020, 1:27 pm

CryptoPlankton wrote:
Wizard wrote:Recent news flow is seemingly drawing a picture of an economy being hit very hard by the impact of the Covid-19 mitigation measures, probably with thousands of small businesses not surviving and quite probably a few big ones failing as well. It is not just the UK, I fear that it is going to take a very, very long time for the global economy to recover from the actions that were (and in some cases still are being) taken. At a personal level I have had one relative made redundant already and have two friends both going through consultation (particularly bad as they are a couple who are both employed by the same company), so the consequences of the actions taken are getting uncomfortably close to home.

The cost of each live saved may well turn out to be extremely high and part of that cost will I think be in the form of depressed dividend income for many investors for years to come. Personally I see the curve being very long and very shallow once it starts to turn upwards again.

Glad to see you aren't reporting any deaths or serious illness to friends or family as a result of the virus. Whether or not that would have been different without the measures taken we'll never know, but personally I'm not sorry that collectively we've valued life as highly as we have. It's far easier to bounce back from a loss of income than an ICU bed...

It seems from what I have been seeing reported on the BBC that things are rather more complicated. In order to put in place COVID-19 mitigation measure it seems cancer care was massively reduced and there is now an expectation of a significant spike in deaths from cancer due to the lack of treatment during the period. Hopefully nobody here or those near and dear to them will be effected.

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Re: Cancelled Dividends

#324090

Postby scrumpyjack » July 6th, 2020, 2:11 pm

A lot of FT100 companies were over distributing and CV has given them a great excuse to get the dividend down whilst blaming it on factors outside their control. I guess those dividends will not rapidly recover to previous levels.

Some companies had the cash and may not be too badly affected but chose to cancel the dividend anyway to show prudence in the face of uncertainty. Those dividends may well recover

Some have been pressured to cut by regulators, or because everyone else was, but their underlying business may turn out not to have been badly affected. They didn’t need to close or stop trading and have not made losses during the crisis. Those dividends will probably be restored.

Some have been catastrophically affected, having to close up but still bear lots of fixed costs with no income, eg Pubs, restaurants and most shops. Many will cease trading, the rest will have paying dividends as a very low priority.

The high quality companies that get through this may do very well in the future as the weaker competition goes out of business.

I’m sure the stock market is factoring in all these points and so is relatively buoyant, at least in terms of the sp of the companies felt to be survivors.

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Re: Cancelled Dividends

#331427

Postby Wasron » August 6th, 2020, 6:19 pm

Mondi have reinstated their dividend today, doing some catch up for the missed final alongside the interim.

48.75c ex div 20/8, paid 29/9

It’s still a cut, as this is less than the missed final, but at least it’s heading in the right direction

Wasron

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Re: Cancelled Dividends

#331430

Postby GoSeigen » August 6th, 2020, 6:28 pm

scrumpyjack wrote:A lot of FT100 companies were over distributing and CV has given them a great excuse to get the dividend down whilst blaming it on factors outside their control. I guess those dividends will not rapidly recover to previous levels.

Cor, I do agree but when one tried to suggest this a few years back, boy did one get vilified.

GS

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Re: Cancelled Dividends

#331437

Postby 1nvest » August 6th, 2020, 7:09 pm

OwenSwansea wrote:A Stocks and Shares ISA is not much use to someone who has, for example, recently sold a business, and has say £500K to invest. It would take twenty five years to get this sort of money into the Stock Markets.

Owen

Something like SPXL inside ISA, SPXS and SHY (bonds) outside of ISA
Image
... can act as a form of capital transfer

That's a neutralish overall stance, for a element of long exposure, just reduce SPXS/increase SPXL

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Re: Cancelled Dividends

#344687

Postby Alaric » October 2nd, 2020, 8:06 pm

Alaric wrote:There's recent evidence of the effect of cancelled dividends from VUKE (Vanguard FTSE 100 ETF).

The distribution for the most recent quarter was £ 0.100057 at an xd date of 11th June 2020. That's down from £ 0.377945 at 26th March and £ 0.437748 a year ago at 27th June 2019.

Source
https://www.vanguardinvestor.co.uk/inve ... tributions


An update on this

The September distribution was £ 0.247858 at xd date of 24th Sep 2020. That's well up on June, but September 2019 had been £ 0.430731

The equivalent Ishares ETF shows a similar pattern.

https://www.ishares.com/uk/individual/e ... f-inc-fund

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Re: Cancelled Dividends

#345145

Postby Alaric » October 4th, 2020, 4:25 pm

Alaric wrote:The equivalent Ishares ETF shows a similar pattern.


I wonder what the state of play is with income orientated OEICs.

With ITs, it's clear enough that they can and do maintain their dividends by using the accounting reserves.

With OEICs like ETFs, they are supposed to distribute all their dividends. Unlike ETFs which are passively managed, actively managed OEICs can indulge in some creativity by selling stocks once they go xd and buying stocks where the dividend is imminent. It's probably at the expense of capital performance, but it does provide a means of maintaining a dividend should that be an investment management objective.


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