What to top up and HYP strategy going forward

[Lootman]

The comment that 'I'm buying their reserves' ?

Well, if I buy MUT at 4.5% yield, as I did in a top-up on Thursday, I'm confident that they will use their reserves to continue paying me 4.5% or thereabouts. So I regard it as buying access to their reserves.

Yes, as Gen says, I could just keep the cash, but then I receive no income. It's not that I need the income, but it's nice to have, eh, what?

Just to clarify, you said (with my bold) "What I'm buying is their reserves to see me past the divi drought." and my response was about keeping the cash (possibly as near-cash investments) for that reason. If you think there's a good chance you'll need cash in the short term (i.e. the next year or two), keep it in cash (which is why most income investors who are in the 'drawdown phase' rather than the 'build phase' keep a cash reserve), as shares (even IT shares) have quite a high chance of delivering capital losses that exceed the dividend income they deliver. If you're investing for the longer term, buying shares because you think they'll give you a good return makes sense - and I agree ITs' income reserves are one of the reasons one might think that.

When people here talk about having a cash reserve I thought the general idea there was that it was to cover temporary declines in dividends, such as we are experiencing now. The cash replaces the missing income.

If I am understanding you correctly you seem to be saying rather that the cash is held because of "quite a high chance of delivering capital losses that exceed the dividend income they deliver". That is, that the cash is held to somehow compensate you for capital losses? I don't follow that.

To my mind the benefit of buying a IT is that the possibility of dividend declines is greatly reduced, due to the trust's internal reserves. So for example if you have 100K to invest then if you buy individual shares you might want to hold back 10K in reserves, and only invest 90K in shares. Whereas you might feel confident in putting the entire 100K in a IT because it has builtin reserves. So longer-term you might do better with the IT, other things being equal, because you have more invested in the market.

[Alaric]

That is, that the cash is held to somehow compensate you for capital losses? I don't follow that.

Perhaps if markets are declining and dividends are being cut, the time to be fully invested may not be today. If you anticipate needing to make sales in the near future, holding cash rather than investing may be a plan.

Notwithstanding their accounting reserves, ITs are usually fully invested. If they are paying out higher dividends than they receive, ITs have to get the cash from somewhere. meaning they borrow or sell.

If an individual were to attempt to emulate an IT in their investment strategy, then an approach might be to drawn down 85% of the dividend income, reinvesting the rest. If the amount drawn came under pressure because of dividend cancellations, then sell assets to the extent that they equated to the reinvested dividends.

[Gengulphus]

The comment that 'I'm buying their reserves' ?

Well, if I buy MUT at 4.5% yield, as I did in a top-up on Thursday, I'm confident that they will use their reserves to continue paying me 4.5% or thereabouts. So I regard it as buying access to their reserves.

Yes, as Gen says, I could just keep the cash, but then I receive no income. It's not that I need the income, but it's nice to have, eh, what?

Just to clarify, you said (with my bold) "What I'm buying is their reserves to see me past the divi drought." and my response was about keeping the cash (possibly as near-cash investments) for that reason. If you think there's a good chance you'll need cash in the short term (i.e. the next year or two), keep it in cash (which is why most income investors who are in the 'drawdown phase' rather than the 'build phase' keep a cash reserve), as shares (even IT shares) have quite a high chance of delivering capital losses that exceed the dividend income they deliver. If you're investing for the longer term, buying shares because you think they'll give you a good return makes sense - and I agree ITs' income reserves are one of the reasons one might think that.

When people here talk about having a cash reserve I thought the general idea there was that it was to cover temporary declines in dividends, such as we are experiencing now. The cash replaces the missing income.

If I am understanding you correctly you seem to be saying rather that the cash is held because of "quite a high chance of delivering capital losses that exceed the dividend income they deliver". That is, that the cash is held to somehow compensate you for capital losses? I don't follow that.

To my mind the benefit of buying a IT is that the possibility of dividend declines is greatly reduced, due to the trust's internal reserves. So for example if you have 100K to invest then if you buy individual shares you might want to hold back 10K in reserves, and only invest 90K in shares. Whereas you might feel confident in putting the entire 100K in a IT because it has builtin reserves. So longer-term you might do better with the IT, other things being equal, because you have more invested in the market.

If the companies that are the IT's underlying investments cut their dividends severely, an IT manager might well decide that it's better to cut the IT's dividends more mildly in order to drain the reserves more slowly and be able to ride out a longer period of depressed company dividends without a more severe cut. So if you're investing in an IT on the basis that it gives you £90k in underlying shareholdings and £10k in cash reserves, and you need £10k to get you past the dividend drought, you're taking a risk that the IT won't actually deliver all of it to you. Whereas if you keep £10k in a cash or near-cash reserve of your own, you know you can draw it down when required - as I said in the post the 88V8 refers to but doesn't quote, "That way, they get released to you by your decision made in the light of your financial circumstances".

Of course, maybe you actually only need say £5k to get you past the dividend drought. But in that case, having £5k in a cash reserve of your own allows you to put £95k into shareholdings - which means that you have £95k in the market compared with only £90k for the £100k investment in the IT - its cash reserve is not "invested in the market". That's somewhat simplistic, I'll admit - it doesn't take the IT's discount into account, nor its management fees and other investment costs, nor your own investment costs - all factors that might (or might not) balance out to say that the IT's shares are a good longer-term bargain. That balancing-out might end up saying that the IT has more effectively invested in the market than its price suggests - but not that it has its cash reserve invested in the market, i.e. earning equity returns.

I'll also point out that 88V8's comment in the quote makes it clear that he doesn't actually need the dividend income - so the impression given by his initial "What I'm buying is their reserves to see me past the divi drought" that he needed something to get him past the dividend drought was somewhat misleading. I don't think he intended it to be misleading, but my response was based on that impression, and my clarification is for the benefit of any readers who do need cash to get them past the dividend drought: that drought is likely to sufficiently short-term that if they've currently got the cash IMHO they should keep a sufficient cash reserve of their own rather than putting it into shares of any kind. If they've got more cash than needed for that, that opinion doesn't apply to the excess, of course - and if they don't currently have the cash, that's a reason in itself not to be buying shares!

Gengulphus

[Alaric]

So if you're investing in an IT on the basis that it gives you £90k in underlying shareholdings and £10k in cash reserves

It would be unusual for an IT to operate in that manner. More likely is that it has £ 100k in shareholdings. If it wants or needs to pay out £ 10k in dividends over and above what it has collected, then it either sells or borrows. The relevance of the Income Reserve is only to determine whether it's allowed to over distribute and retain its concessionary tax status.

On the other hand, if an investor's primary investment objective is a reasonably secure and rising income from dividends, a collection of ITs is likely to be better at delivering that than a strategy of selecting higher yielding shares with an added self imposition of not being willing to sell to supplement or maintain income.

[tjh290633]

Just looking at the Annual Report of F&C IT, the Balance Sheet tells me:

Investments: £4,512,321,000
Current Assets: £48,759,000 (Debtors and Cash & Cash Equivalents)
Revenue Reserve: £111,224,000

https://www.bmogam.com/fandc-investment ... t-2020.pdf

Which rather dispels the idea of an IT having large reserves of cash. In fact less than half the Revenue Reserve and about 1% of the value of investments.

TJH

[Gengulphus]

So if you're investing in an IT on the basis that it gives you £90k in underlying shareholdings and £10k in cash reserves

It would be unusual for an IT to operate in that manner. More likely is that it has £ 100k in shareholdings. If it wants or needs to pay out £ 10k in dividends over and above what it has collected, then it either sells or borrows. The relevance of the Income Reserve is only to determine whether it's allowed to over distribute and retain its concessionary tax status.

In which case 88V8's statement that "What I'm buying is their reserves to see me past the divi drought." is just relying on the IT to do something he could do himself (and again, if and when he needs the cash, rather than if and when the IT's manager thinks it should be done to maintain the IT's dividend record), not on an actual cash reserve.

On the other hand, if an investor's primary investment objective is a reasonably secure and rising income from dividends, a collection of ITs is likely to be better at delivering that than a strategy of selecting higher yielding shares ...

That's a matter of opinion - I have no doubt that it's an opinion that you genuinely hold, but equally I have no doubt that the investors you're arguing against genuinely hold the opposite opinion.

... with an added self imposition of not being willing to sell to supplement or maintain income.

I know that's what at least some (not all) HYPers say is their self-imposed rule, but you surely can't seriously believe that they'll actually refuse to sell if push comes to shove, i.e. if they genuinely need the money and selling is the only way to get it, can you? Especially when pyad's introductory article doesn't just say "Having chosen your shares, simply buy and hold forever.", but also "Note also that your capital is freely available to you at any time at the market price should you need to realise it, a valuable feature." The obvious way to get hold of your capital at market price is to sell, and it certainly cannot be done by simply holding, so there's an apparent contradiction there. But anyone sensible ought to realise that the resolution of that apparent contradiction is that "Having chosen your shares, simply buy and hold forever." is an ambition and a recommendation, not a hard-and-fast rule that cannot be overridden if you need the capital. I.e. it's saying aim never to need to sell, and don't sell if you don't need to - but if it turns out that you do need to, sell. (Edit: Just to be clear about that, I'm saying what a sensible reading of the article is, not that I fully agree with that reading!)

Gengulphus

[Alaric]

but equally I have no doubt that the investors you're arguing against genuinely hold the opposite opinion.

I thought it had been established that many of the supporters of the HYP-P board don't actually rely on the "HYP" for their income. If they have other income producing investments or are employed, cancellation of dividends doesn't become a serious problem.

Those who do rely on a higher yielding portfolio for income have their own methods which may well include a much wider range of investments.

[Itsallaguess]

Just looking at the Annual Report of F&C IT, the Balance Sheet tells me:

Investments: £4,512,321,000
Current Assets: £48,759,000 (Debtors and Cash & Cash Equivalents)
Revenue Reserve: £111,224,000

https://www.bmogam.com/fandc-investment ... t-2020.pdf

Which rather dispels the idea of an IT having large reserves of cash.

It's not much good quoting the physical size of an IT's revenue-reserve without also comparing it to the dividend distributions that it's being reserved against though Terry...

When we look in the above 2019 linked report for F&C, we can see that they paid out almost £62m in dividends last year -



Source - https://www.bmogam.com/fandc-investment-trust/wp-content/uploads/2020/03/fcit-annual-report-2020.pdf

So at £111m, the F&C revenue-reserve is actually nearly 2-years worth of distributed dividends, and given that we would hopefully agree that no Investment Trust is likely to ever see a 100% dry-up of incoming funds anyway, then it's probable that this level of revenue-reserve would be able to cover a period of time even longer than that, if required to do so...

Cheers,

Itsallaguess

[Gengulphus]

Just looking at the Annual Report of F&C IT, the Balance Sheet tells me:

Investments: £4,512,321,000
Current Assets: £48,759,000 (Debtors and Cash & Cash Equivalents)
Revenue Reserve: £111,224,000

https://www.bmogam.com/fandc-investment ... t-2020.pdf

Which rather dispels the idea of an IT having large reserves of cash.

It's not much good quoting the physical size of an IT's revenue-reserve without also comparing it to the dividend distributions that it's being reserved against though Terry...

When we look in the above 2019 linked report for F&C, we can see that they paid out almost £62m in dividends last year -



Source - https://www.bmogam.com/fandc-investment-trust/wp-content/uploads/2020/03/fcit-annual-report-2020.pdf

So at £111m, the F&C revenue-reserve is actually nearly 2-years worth of distributed dividends, and given that we would hopefully agree that no Investment Trust is likely to ever see a 100% dry-up of incoming funds anyway, then it's probable that this level of revenue-reserve would be able to cover a period of time even longer than that, if required to do so...

However, from TJH's link, the cash they had in reserve at the end of 2019 was £28,196,000. That's what they can use to make up for a shortfall in dividends received from their distributed dividends of ~£62m, before they have to start finding other methods of raising cash, such as trying to squeeze it out of debtors, borrowing more or net sales of assets. It's equivalent to just under 6 months worth of those distributed dividends - a reasonably close analogue of the 'emergency fund' of 3-6 months of living expenses that people are generally advised to keep in cash in case of unexpected high expenses or income falls (and that those reliant on less reliable forms of income would be well-advised to keep at the top end of that range or even beyond it).

The revenue reserve on the balance sheet is instead basically a limit on how much they're allowed to raise from other sources in order to distribute it to shareholders - vaguely akin to an individual's overdraft limit, not to the balances in their cash accounts.

Gengulphus

[Wuffle]

These ITs are conspicuously long term entities. Therein lies some of the appeal(?).
Is now the right time to be pushing the gearing up and taking advantage of subdued valuations?
As a byproduct, generating liquidity to bulk the payouts.
A low single figure percentage change to gearing sort of dwarfs the annual income shortfall but are punters quite as precious about this number?

W.

[Gengulphus]

With some context for Alaric's cut-down quote of my words restored, so that the meaning of those words isn't lost:

On the other hand, if an investor's primary investment objective is a reasonably secure and rising income from dividends, a collection of ITs is likely to be better at delivering that than a strategy of selecting higher yielding shares ...

That's a matter of opinion - I have no doubt that it's an opinion that you genuinely hold, but equally I have no doubt that the investors you're arguing against genuinely hold the opposite opinion.

I thought it had been established that many of the supporters of the HYP-P board don't actually rely on the "HYP" for their income. If they have other income producing investments or are employed, cancellation of dividends doesn't become a serious problem.

Those who do rely on a higher yielding portfolio for income have their own methods which may well include a much wider range of investments.

We're talking about investors whose primary investment objective is a reasonably secure and rising income from dividends. Some of them agree with you that a collection of ITs is likely to be better at delivering that than a strategy of selecting higher yielding shares: they're clearly not the ones you're arguing against. Some of them have their own methods: as far as I can see, they're also not the ones you are arguing against.

But some of them use a strategy of selecting higher-yielding shares and not much else for their income, and believe it superior to a collection of ITs: I have no more doubt that their opinion is genuine than I do that yours is. And just stating your opinion as though it is fact does not win the argument as far as I am concerned.

And to forestall a possible argument: the argument also won't be won as far as I am concerned by just exhibiting superior performance from one particular collection of ITs compared with one particular selection of higher-yielding over a short period of a year or even a few years - especially a decidedly unusual year like this one. It would need a study of a good number of independent, sensibly-selected collections of ITs, compared with a good number of independent, sensible selections of higher-yielding shares, over a long period (at least a decade, and preferably multiple decades). That's a major undertaking, and I very much doubt we're going to see it happen! So I'm pretty certain that not only is it an unresolved difference of opinion, but that it is going to remain that way...

One other point I would make is that it's perfectly possible that both sides are right - about what is best for themselves. Selecting a portfolio of individual shares is a skill, selecting people (IT managers in this case) who have that skill is a different skill - and they're rather different types of skill. It's perfectly possible to be better at one than the other, and for different investors to vary in that respect. Certainly I find selecting shares in individual companies considerably easier than selecting ITs (or any other type of fund), and I'm reasonably certain that I'm better at it as well - but I don't expect everyone else to be like me about that!

Gengulphus

[Alaric]

And to forestall a possible argument: the argument also won't be won as far as I am concerned by just exhibiting superior performance from one particular collection of ITs compared with one particular selection of higher-yielding over a short period of a year or even a few years - especially a decidedly unusual year like this one. It would need a study of a good number of independent, sensibly-selected collections of ITs, compared with a good number of independent, sensible selections of higher-yielding shares, over a long period (at least a decade, and preferably multiple decades).

Demonstration HYP portfolios must have had a bad run then, as invariably the income has fallen both now and during the crisis of 2008. ITs generally speaking have ridden out the storms. Indeed a proponent of HYPs went as far as to say that if you couldn't handle the drop in dividend income, you shouldn't be invested in equities.

[chris]

However, from TJH's link, the cash they had in reserve at the end of 2019 was £28,196,000. That's what they can use to make up for a shortfall in dividends received from their distributed dividends of ~£62m, before they have to start finding other methods of raising cash, such as trying to squeeze it out of debtors, borrowing more or net sales of assets. It's equivalent to just under 6 months worth of those distributed dividends - a reasonably close analogue of the 'emergency fund' of 3-6 months of living expenses that people are generally advised to keep in cash in case of unexpected high expenses or income falls (and that those reliant on less reliable forms of income would be well-advised to keep at the top end of that range or even beyond it).

The revenue reserve on the balance sheet is instead basically a limit on how much they're allowed to raise from other sources in order to distribute it to shareholders - vaguely akin to an individual's overdraft limit, not to the balances in their cash accounts.

This is the problem with someone posting half a balance sheet - some of the key information that you need to understand the use of cash is missing. No, what the £28M cash and £20M debtors will need to be used for first is the £91M of loan repayments and other creditors (like tax) which is due within 1 year. Normally, they will have plenty of dividends to cover this but this year, things are going to look decidedly different.

From the income statement, they only get £89M in dividends and this is very likely to be halved. Now I'm sure everyone thinks that the fund's first priority will be to pay dividends to their shareholders, but I am here to tell you that their first priority will be to pay the £10.5M that pays their management fees, other expenses and bank interest. Then to get any money to pay dividends, on top of the extra money they will need to pay these expenses, they will have to sell assets which will almost certainly involve a capital loss, which will come out of distributable reserves, leaving less to pay the shareholders. Will they pay significantly more dividend than they receive to make up for it? No - they will reason that the situation could go on for longer than expected and they have next year's fees to find, so they might pay a bit more but they will almost certainly end up cutting back to ensure that the key expenses are well covered, especially as the value of their investments will have decreased and they will need to reflect that potential loss in the accounts in the notes and in the P&L when they sell these assets producing a realised loss.

This is why I don't understand the rush to ITs in the hope that all of these reserves will be distributed and that people will be shielded from the ravages of this pandemic by buying them. It may happen, but I have my suspicions that it won't. There will always be a reason to keep quite a bit in reserve because rainy days are happening quite often at the moment!

[dealtn]

And to forestall a possible argument: the argument also won't be won as far as I am concerned by just exhibiting superior performance from one particular collection of ITs compared with one particular selection of higher-yielding over a short period of a year or even a few years - especially a decidedly unusual year like this one. It would need a study of a good number of independent, sensibly-selected collections of ITs, compared with a good number of independent, sensible selections of higher-yielding shares, over a long period (at least a decade, and preferably multiple decades). That's a major undertaking, and I very much doubt we're going to see it happen! So I'm pretty certain that not only is it an unresolved difference of opinion, but that it is going to remain that way...

Well I think you would need to establish what is meant by "reasonably secure and a rising income from dividends" in making your argument.

For some an (dividend) income that falls in a single year might in itself fail the "secure" and "rising" test, for some that might be too rigid a test, but were that income not to recover and exceed the peak within say 2, or 3, years, might be considered to fail that test.

I don't think it's generally thought untrue that an IT that pays out slightly less of its received dividends, and reserves, is less likely to face a drop in any particular period, nor less likely to recover. As such, depending on the broadness of your definition, it is more likely to meet the claim of all of "reasonably secure", "rising income" and "dividends". The argument is about the quantum of that security and the rise.

It appears to me its the slow-and-steady, lower volatility (of income but probably capital too) of a general IT, versus the higher volatility of (some) self-selected portfolios.

[Gengulphus]

And to forestall a possible argument: the argument also won't be won as far as I am concerned by just exhibiting superior performance from one particular collection of ITs compared with one particular selection of higher-yielding over a short period of a year or even a few years - especially a decidedly unusual year like this one. It would need a study of a good number of independent, sensibly-selected collections of ITs, compared with a good number of independent, sensible selections of higher-yielding shares, over a long period (at least a decade, and preferably multiple decades).

Demonstration HYP portfolios must have had a bad run then, as invariably the income has fallen both now and during the crisis of 2008. ITs generally speaking have ridden out the storms. Indeed a proponent of HYPs went as far as to say that if you couldn't handle the drop in dividend income, you shouldn't be invested in equities.

You're not comparing apples with apples. Every demonstration HYP I've seen consists of the shareholdings alone, and is judged purely by the dividends delivered by those shareholdings. The underlying shareholdings of ITs will have experienced similar dividend income falls.

Any sensible real-life HYP will have some associated cash reserves, and has the ability to sell shares if those cash reserves run out - and as I've said above, no matter how much some (not all) HYPers say that they never intend to sell shares, I'm certain they will if things get bad enough. ITs have similar cash reserving and potential selling built in - which is a potential advantage for the investor because it saves them the effort of doing it themselves, but also a potential disadvantage because the IT manager might use larger or smaller cash reserves than would be ideal for the investor, and might sell when the investor could actually take the dividend reduction in their stride, or decide to reduce the dividend instead of selling when the investor cannot take the dividend reduction in their stride.

In short, to compare apples with apples, you need to either compare demonstration HYPs with the underlying share portfolios of ITs, or real-life HYPs (including whatever measures the HYPer has in place to handle dividend income falls) with the ITs' own dividend performances.

Gengulphus

[Alaric]

This is why I don't understand the rush to ITs in the hope that all of these reserves will be distributed and that people will be shielded from the ravages of this pandemic by buying them. It may happen, but I have my suspicions that it won't. There will always be a reason to keep quite a bit in reserve because rainy days are happening quite often at the moment!

Past decisions by some or many IT managements have been to maintain dividends. If it's viewed as a matter of policy that the dividend will be maintained or increased in line with inflation, then investors are perhaps trusting them to do this. As voting shareholders, investors in principle have the power to enforce this.

If an IT is actively managed, it's likely to be continually selling and buying shares. Extra cash could be set aside from this normal process if dividends needed to be supported from reserves.

[Alaric]

You're not comparing apples with apples. Every demonstration HYP I've seen consists of the shareholdings alone, and is judged purely by the dividends delivered by those shareholdings. The underlying shareholdings of ITs will have experienced similar dividend income falls.

What I think we are both saying is that if the primary objective is a reasonably secure and rising income, then an unmanaged HYP on its own is unsuitable. If it's alongside a defined benefit pension or an annuity, income volatility doesn't matter so much. If it's a replacement for those, then it probably does.

[Itsallaguess]

And to forestall a possible argument: the argument also won't be won as far as I am concerned by just exhibiting superior performance from one particular collection of ITs compared with one particular selection of higher-yielding over a short period of a year or even a few years - especially a decidedly unusual year like this one. It would need a study of a good number of independent, sensibly-selected collections of ITs, compared with a good number of independent, sensible selections of higher-yielding shares, over a long period (at least a decade, and preferably multiple decades). That's a major undertaking, and I very much doubt we're going to see it happen! So I'm pretty certain that not only is it an unresolved difference of opinion, but that it is going to remain that way...

I don't think it's generally thought untrue that an IT that pays out slightly less of its received dividends, and reserves, is less likely to face a drop in any particular period, nor less likely to recover. As such, depending on the broadness of your definition, it is more likely to meet the claim of all of "reasonably secure", "rising income" and "dividends". The argument is about the quantum of that security and the rise.

It appears to me its the slow-and-steady, lower volatility (of income but probably capital too) of a general IT, versus the higher volatility of (some) self-selected portfolios.

I can only speak personally on this, but as someone who used to run a single-share HYP and who has in recent years been moving much more prominently towards Investment Trusts for my income-portfolio, I certainly consider that move to be one of the single best, long-term investment decisions I've ever made.

I decided a long time ago that even if a more volatile (income and capital) single-share HYP approach might actually deliver an improved 'total return' result, I was the type of investor who was quite willing to give up some of that potential benefit in return for a much more stable return being delivered by alternative methods...

Whether I've had to or not, I'll leave to other people's 'multi-decade studies' to decide, as one of the primary drivers for changing my approach was much less to do with concrete 'total returns' over such long periods, and much more to do with my ability to even last the course and be able to benefit from them, and I can hand-on-heart say that I'd have dropped out the investment race years ago if the only track to run it on was marked 'HYP'....

Cheers,

Itsallaguess

[Dod101]

[
This is the problem with someone posting half a balance sheet - some of the key information that you need to understand the use of cash is missing. No, what the £28M cash and £20M debtors will need to be used for first is the £91M of loan repayments and other creditors (like tax) which is due within 1 year. Normally, they will have plenty of dividends to cover this but this year, things are going to look decidedly different.

From the income statement, they only get £89M in dividends and this is very likely to be halved. Now I'm sure everyone thinks that the fund's first priority will be to pay dividends to their shareholders, but I am here to tell you that their first priority will be to pay the £10.5M that pays their management fees, other expenses and bank interest. Then to get any money to pay dividends, on top of the extra money they will need to pay these expenses, they will have to sell assets which will almost certainly involve a capital loss, which will come out of distributable reserves, leaving less to pay the shareholders. Will they pay significantly more dividend than they receive to make up for it? No - they will reason that the situation could go on for longer than expected and they have next year's fees to find, so they might pay a bit more but they will almost certainly end up cutting back to ensure that the key expenses are well covered, especially as the value of their investments will have decreased and they will need to reflect that potential loss in the accounts in the notes and in the P&L when they sell these assets producing a realised loss.

This is why I don't understand the rush to ITs in the hope that all of these reserves will be distributed and that people will be shielded from the ravages of this pandemic by buying them. It may happen, but I have my suspicions that it won't. There will always be a reason to keep quite a bit in reserve because rainy days are happening quite often at the moment!

£91 million of loan repayments will presumably be funded by some form of refinancing of the loan. What makes you think that the dividend income will be halved? That is a very fundamental point and you may be right but I have not gone through the investments to get any idea. Have you?

I agree though with the point that ITs are no more immune from a long term dividend shortfall than any one of us. whether that results in a cutting of their dividend only time will tell. They can probably at least hold their dividend for a year or two but then will be in trouble.

Dod

[Gengulphus]

And to forestall a possible argument: the argument also won't be won as far as I am concerned by just exhibiting superior performance from one particular collection of ITs compared with one particular selection of higher-yielding over a short period of a year or even a few years - especially a decidedly unusual year like this one. It would need a study of a good number of independent, sensibly-selected collections of ITs, compared with a good number of independent, sensible selections of higher-yielding shares, over a long period (at least a decade, and preferably multiple decades). That's a major undertaking, and I very much doubt we're going to see it happen! So I'm pretty certain that not only is it an unresolved difference of opinion, but that it is going to remain that way...

Well I think you would need to establish what is meant by "reasonably secure and a rising income from dividends" in making your argument.

Assuming you mean the slightly different phrase "a reasonably secure and rising income from dividends", I'd suggest you address that point to Alaric rather than me. He used it in viewtopic.php?p=337044#p337044 above, and I merely discussed what he'd said in his terms. But FWIW, I agree that the phrase doesn't say anything about the level of the income - I just regard a reasonably high level as implicit in any discussion on this board, unless otherwise stated.

Also, I agree that any study of the type I mention in the quote above would need settle on more precise descriptions than "reasonably secure", "reasonably high", "dividends" (due to issues such as whether PIDs, Rolls-Royce's dividend-like capital distributions, etc, count as "dividends") and "rising" (due to issues such as whether going up in nominal but not inflation-adjusted counts as "rising"). That's one of the bridges anyone proposing setting up such a study has to cross - but as I hope the quote makes clear, that's not me!

Gengulphus