Investment Trust dividends - where next?

[Arborbridge]

Oh I will be continuing my research into the comparison between HYP1 and various Investment Trusts, but will not be posting any further results of my research!

That's shame Ian, many we're looking forward to reading your conclusions here I'm sure.

You've just reminded me of an old Stewart Lee joke: If a tramp farts in a forest and nobody hears it, is it still funny? Discuss. (and to be clear I am not insinuating you are a tramp or your expulsions are funny, would I do that.)

Ah, now did you mean a case of the tramp farting and no one hearing (because there was no one there to hear), or the tramp farting and no one listening (as in no one wanting to hear it)?

But the quantum truth is that if there was no one there to hear it, it didn't exist.

[Arborbridge]

It's a shame this thread as deteriorated into the discussing the merits or otherwise of HYP/HYP1 versus other investment strategies. It was intended to discuss the prospects for dividends from income generating IT's in 2021 and beyond.

On pyad's point about Temple Bar's recent 25% dividend cut, I missed that. TMPL is not in my portfolio, nor do I read every thread on Lemon Fool!

My own portfolio of 10 income generating IT's is here (Name, Ticker, current yield):

Henderson Far East Income Ltd. (HFEL) 7.20%
BlackRock World Mining Trust (BRWM) 4.90%
City of London Inv Trust (CTY) 5.30%
Dunedin Income Growth Inv Trust (DIG) 4.60%
Murray International Trust (MYI) 5.00%
BMO Capital & Income Investment Trust (BCI) 4.00%
Aberdeen Standard Equity Income Trust (ASEI) 7.00%
Scottish American Inv Company (SAIN) 2.70%*
Greencoat UK Wind (UKW) 5.30%
NextEnergy Solar Fund Limited Red (NESF) 6.40%

Overall yield 5.04%

I think the next 6 months will tell us a lot. If the pandemic recedes, then I see dividends being restored rapidly and IT such as these are likely to be able to see this crisis through without any cuts. If not, then inevitably cuts would start to be made, but many have a long track record of not cutting, which I suspect they will want to defend if they can sensibly do so.

* For anyone wanting to say that SAIN is not high yield, that is true now, but not when I bought it, and I only sell rarely!

FD

I'm sure as dividends are re-established, ITs will try to keep dividends increasing if possible, but they will also be anxious to rebuild their reserves. I'm expecting most ITs to survive this without running out of reserves, and without further cuts. However, it's possible that some Directors might take fright and cut in order to be extra prudent.
As you say, interesting times just ahead.

Arb.

[Alaric]

If not, then inevitably cuts would start to be made, but many have a long track record of not cutting, which I suspect they will want to defend if they can sensibly do so.

Given that most ITs have continuity of management, this is an area where past performance,or at least past decision making, does give an indication as to the future.

Income OEICs are interesting. They do not appear to have cut their dividends to nearly the same extent as tracker ETFs. One might suspect the manufacture of dividends by the device of selling ex div and buying cum div. IT's could be doing that as well, although don't need to if their revenue reserves are sufficient.

[moorfield]

But the quantum truth is that if there was no one there to hear it, it didn't exist.

Not quite. It both did and didn't exist, until it was heard.

[Arborbridge]

But the quantum truth is that if there was no one there to hear it, it didn't exist.

Not quite. It both did and didn't exist, until it was heard.

Quite right, and each day, when Schrodinger went for his daily walk in the forest, he didn't know whether there would be silence.

Arb.

[Itsallaguess]

I think the next 6 months will tell us a lot.

If the pandemic recedes, then I see dividends being restored rapidly and IT such as these are likely to be able to see this crisis through without any cuts.

If not, then inevitably cuts would start to be made, but many have a long track record of not cutting, which I suspect they will want to defend if they can sensibly do so.

Back in early April I drew up a table of income Investment Trusts based on the AIC 'UK Equity Income segment', with the intention of tracking their full-year 2019 dividends into 2020 and also 2021, with a view to seeing how a wide range of UK-centric IT's would fare with a period where COVID was central to the fortunes of their underlying component-income -



https://www.lemonfool.co.uk/viewtopic.php?f=31&t=22053&start=100#p298983

I'm still currently waiting on a couple to report fully for 2020, but when they do I will be updating the above thread with the full-year 2020 dividends from those IT's.

What I can say at the moment, however, is that Temple Bar with their 25% cut are the only IT in that table to lower their full-year 2020 dividend up to now, and whilst quite a few of the others are currently showing relatively modest raises this year, it has been surprising to see just the single cut at this time...

Hopefully the good news on the vaccine front will enable a much better year in 2021 for the wider UK and Global economy, and we may be able to look back and see the beneficial use of our Investment Trusts's income-reserves as doing exactly what they were there to do - which is to cope with these jolts in underlying income when they do unfortunately, and of course inevitably, come around...

Cheers,

Itsallaguess

[tjh290633]

In the chart below, I've pulled out data from the above post just comparing income from HYP1 and Luni's Basket of Seven -

quote]


... but Pyad's income comparisons were always versus inflation, not a basket of ITs, weren't they?

I was only using the above chart in my earlier post (and the link to Arb's chart too..) to highlight what seems to be a clear difference in meaning when Ian might choose to repeatedly use words like 'better' when regularly discussing these types of issues.

The above graph assumes that the starting incomes were equal. Were they?

I suspect not.

TJH

[Itsallaguess]

The above graph assumes that the starting incomes were equal. Were they?

No, they weren't Terry, but that wasn't really the point of my post, which was primarily to help illustrate how different people might be using the same word, 'better', to discuss completely different aspects of how they might actually value a particular income-strategy, and also the delivery of it over long periods of time..

Where some people might be wanting to concentrate on particular 'quantitative performance metrics' over a given time-frame, that view might clearly clash with other income-investors who might be quite willing to give up a level of those 'quantitative performance metrics', if by doing so they were able to maintain aspects of an income strategy that might be more important to them, in terms of predictability and reliability of that underlying dividend income...

My use of the HYP1 and Basket of seven chart was primarily aimed at trying to clearly illustrate those points..

With that said though Terry, I also linked to a post by Arb, where he's recently updated his own income-comparison chart, plotting his income-per-unit of his HYP holdings against his income-IT holdings, which in my view painted an even more dramatic picture than the one we've discussed above -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=26214&start=120#p358283

Later in that thread, Arb states that the yield from his HYP holdings roughly yield around 1% higher than his IT holdings historically, and I think that's also a good set of information, all things considered, because it gives a real-life indication of the sort of yield-difference that might be given up by income-investors who might actually be happy to trade HYP volatility away, for a much more predictable and reliable retirement income-stream...

Please note, however, that given the recent jolt in Arb-HYP performance on the above post, it's not clear if that 1% HYP yield benefit still actually exists at this time, which is of course very important when considering these long-term comparisons...

Cheers,

Itsallaguess

[funduffer]

Please note, however, that given the recent jolt in Arb-HYP performance on the above post, it's not clear if that 1% HYP yield benefit still actually exists at this time, which is of course very important when considering these long-term comparisons...

My experience is similar to Arb's. Both my HYP and IT portfolio were set up in 2014, and HYP has usually yielded roughly 1% more than the IT's. Over the first 5 years or so the HYP yielded roughly 5% and the IT's roughly 4%.

Today the historic yields (over the last 12 months) are roughly the same - about 5%. This merely reflects the drop in HYP income, whilst the IT income has slightly increased over the last 12 months.

The capital value of both portfolios has fallen of course (in terms of income unit value), although the HYP capital has fallen further than that of the IT's.

IAAG's comments about smoothness of income (qualitative) versus absolute level (quantitative) are spot on, but of course it all depends on your personal circumstances and attitude to risk and volatility which you prefer.

FD

[Arborbridge]

The above graph assumes that the starting incomes were equal. Were they?

I suspect not.

TJH

I'm not sure why this matters when one is comparing progress of one income stream compared with another. The convention is always to rebase to the earliest common point to make comparison easier to the eye. There's no reason I can see that the income need to be the same.

Maybe I'm doing something wrong here, but if you look at the charts I publish - incomes or prices - are usually "zeroed" at or near the start of the x axis, if being used for comparison.

[Charlottesquare]

Bloody hell pyad - you've found a single income-IT that's cut it's dividend by 25%...

I'm not sure how you're imagining things, but I think anyone with an interest in using Investment Trusts as part of their income-strategy is likely to come through this year and into the next couple of years fairing pretty well, all things considered...

Cheers,

Itsallaguess

Perhaps what lay behind my message is that ITs are not the near-infallible investment that some naive people might believe and the whole IT sector has had a fair amount of scandals and poor performance over the years including quite recently too. (Woodford?)

What does Woodford's Equity Income Fund have to do with IT's, it was not an IT but an open ended fund.(With all their issues, the reason I do favour IT's is that if there is a "run on the bank" there is no need to devour oneself, just sit tight, the underlying investments can sit tight, and wait out the turmoil)

[pyad]

Bloody hell pyad - you've found a single income-IT that's cut it's dividend by 25%...

I'm not sure how you're imagining things, but I think anyone with an interest in using Investment Trusts as part of their income-strategy is likely to come through this year and into the next couple of years fairing pretty well, all things considered...

Cheers,

Itsallaguess

Perhaps what lay behind my message is that ITs are not the near-infallible investment that some naive people might believe and the whole IT sector has had a fair amount of scandals and poor performance over the years including quite recently too. (Woodford?)

What does Woodford's Equity Income Fund have to do with IT's, it was not an IT but an open ended fund.(With all their issues, the reason I do favour IT's is that if there is a "run on the bank" there is no need to devour oneself, just sit tight, the underlying investments can sit tight, and wait out the turmoil)

When I referred to "the whole IT sector" I meant ITs in general have had a number of scandals and poor performance over the years of which the Woodford Patient Capital Trust may be the most recent. I know that his equity income fund was open ended and since you've mentioned it, what a shambles that was for an income fund.

I fully agree with your comments on the advantages of a closed end fund against open ended.

[Dod101]

When I referred to "the whole IT sector" I meant ITs in general have had a number of scandals and poor performance over the years of which the Woodford Patient Capital Trust may be the most recent. I know that his equity income fund was open ended and since you've mentioned it, what a shambles that was for an income fund.

I fully agree with your comments on the advantages of a closed end fund against open ended.

The Patient Capital Trust was the least scandalous of the Woodford problems probably because of its closed end structure. Most ITs are, if not always well run, are usually at least independently. The Patient Capital Trust seemed to have particularly poor governance and seemed to be unduly under the influence of Woodford. Not sure though what this has to do with IT dividends.

Dod

[Charlottesquare]

Perhaps what lay behind my message is that ITs are not the near-infallible investment that some naive people might believe and the whole IT sector has had a fair amount of scandals and poor performance over the years including quite recently too. (Woodford?)

What does Woodford's Equity Income Fund have to do with IT's, it was not an IT but an open ended fund.(With all their issues, the reason I do favour IT's is that if there is a "run on the bank" there is no need to devour oneself, just sit tight, the underlying investments can sit tight, and wait out the turmoil)

When I referred to "the whole IT sector" I meant ITs in general have had a number of scandals and poor performance over the years of which the Woodford Patient Capital Trust may be the most recent. I know that his equity income fund was open ended and since you've mentioned it, what a shambles that was for an income fund.

I fully agree with your comments on the advantages of a closed end fund against open ended.

Of course individual companies have also had a number of bad moments, Carillion, Lloyds, HBOS, Royal Bank, Interserve plus lots of others over the years. (Polly Peck anyone). There are pretty much no infallible investments, merely degrees of risk.

[pyad]

Of course individual companies have also had a number of bad moments, Carillion, Lloyds, HBOS, Royal Bank, Interserve plus lots of others over the years. (Polly Peck anyone). There are pretty much no infallible investments, merely degrees of risk.

Yes of course, we all know that. But I have the feeling that sometimes excessive faith is placed in collective investments including ITs and OE funds etc. A great example you may recall is the Motley Fool's endless promotion in the old days of FTSE100 index trackers but it turns out with hindsight that this index has been a lousy performer over the last 20 years. And it's not just the recent Covid effect, it was weak even before that hit.

[Lootman]

I have the feeling that sometimes excessive faith is placed in collective investments including ITs and OE funds etc. A great example you may recall is the Motley Fool's endless promotion in the old days of FTSE100 index trackers but it turns out with hindsight that this index has been a lousy performer over the last 20 years.

Which is why prudent investors diversify away from the UK into Europe, North America and Asia.

The poor performance of UK equities has been a headwind for decades such that even if a fund or portfolio does better than the FTSE-100, chances are it still under-performed the global index.

It is really not so much an argument against collectives but rather an argument against being overly dependent on just one market, i.e. exposing yourself to single country risk.

[Charlottesquare]

Of course individual companies have also had a number of bad moments, Carillion, Lloyds, HBOS, Royal Bank, Interserve plus lots of others over the years. (Polly Peck anyone). There are pretty much no infallible investments, merely degrees of risk.

Yes of course, we all know that. But I have the feeling that sometimes excessive faith is placed in collective investments including ITs and OE funds etc. A great example you may recall is the Motley Fool's endless promotion in the old days of FTSE100 index trackers but it turns out with hindsight that this index has been a lousy performer over the last 20 years. And it's not just the recent Covid effect, it was weak even before that hit.

You keep bundling ITs and OE funds in your comments when imho they are really not the same beasts. They actually have such a stark difference that if held by a limited company most OE funds are taxed on unrealised gains and losses (See FRS102) whereas ITs held by same are treated as equity shares and taxed accordingly (which is what an IT is, of course).

Not all collective investments are the same just as not all individual shares are the same, anyone can select losers and winners.

I, at today's date, hold only one fund, (some Vanguard All World very recently purchased), two REITS ,seven individual company shares and eighteen ITs, from this I get worldwide exposure plus still can play at stock picking.

On Friday the total sum invested was back to within spit of the 31st January 2020 valuation which does suggest some resilience. (Thanks Scottish Mortgage, Fidelity China, Aberdeen Asian, JPM Emerging. JPM I & G, JPM Indian to name the best performers for me plus the next tier of Aberdeen Standard European Logistics Income, Murray International, Vina Capital Vietnam, Urban Logistics REIT and Warehouse REIT)

The biggest lemon in my mix is that individual share stalwart, Shell, this seems to suggest there are both good and bad in all types ,whether investments are ITs, individual company shares and no doubt OEICs, and hindsight is wonderful.

[tjh290633]

The above graph assumes that the starting incomes were equal. Were they?

I suspect not.

TJH

I'm not sure why this matters when one is comparing progress of one income stream compared with another. The convention is always to rebase to the earliest common point to make comparison easier to the eye. There's no reason I can see that the income need to be the same.

Maybe I'm doing something wrong here, but if you look at the charts I publish - incomes or prices - are usually "zeroed" at or near the start of the x axis, if being used for comparison.

It does matter in terms of the income received. Your graph implies to the casual reader that the income received by the HYP fell below that of the B7 after the first year, when that is definitely not the case. In this comparison, rebasing to a common value is not a legitimate method. You should have started with zero income initially (year zero) and then compared the progress of income year by year. If you wish to put them on a common basis, use income per £100 invested as a suitable comparator.

TJH

[MDW1954]

Of course individual companies have also had a number of bad moments, Carillion, Lloyds, HBOS, Royal Bank, Interserve plus lots of others over the years. (Polly Peck anyone). There are pretty much no infallible investments, merely degrees of risk.

Yes of course, we all know that. But I have the feeling that sometimes excessive faith is placed in collective investments including ITs and OE funds etc. A great example you may recall is the Motley Fool's endless promotion in the old days of FTSE100 index trackers but it turns out with hindsight that this index has been a lousy performer over the last 20 years. And it's not just the recent Covid effect, it was weak even before that hit.

Pyad,

I started writing for The Fool in either 2006 or 2007, I can't remember which. By then, as I recall, it was fairly well accepted that FTSE All-Share trackers were a much more diversified option.

MDW1954

[Lootman]

Of course individual companies have also had a number of bad moments, Carillion, Lloyds, HBOS, Royal Bank, Interserve plus lots of others over the years. (Polly Peck anyone). There are pretty much no infallible investments, merely degrees of risk.

Yes of course, we all know that. But I have the feeling that sometimes excessive faith is placed in collective investments including ITs and OE funds etc. A great example you may recall is the Motley Fool's endless promotion in the old days of FTSE100 index trackers but it turns out with hindsight that this index has been a lousy performer over the last 20 years. And it's not just the recent Covid effect, it was weak even before that hit.

I started writing for The Fool in either 2006 or 2007, I can't remember which. By then, as I recall, it was fairly well accepted that FTSE All-Share trackers were a much more diversified option.

I followed the original US TMF in the mid 1990s before there was a UK TMF. In its early days it was a big advocate of index funds as a simple, cheap way for individual investors to get market returns without paying high fees. Its idea was to dramatically reduce the cost of investing for ordinary people, and to expose the large fees charged by many mediocre active funds, advisers and tipsheet vendors.

Over time TMF US, and later TMF UK, placed less emphasis on index funds and I think the reason is clear: TMF didn't make any money off Fools who simply bought an index fund and that was it. So as the entity grew along with its cost structure, it needed to boost revenues, leading it to offer share tips, subscriptions and other bundled services.

In other words TMF ironically became what the early TMF opposed.

And as to those who think index funds cannot do well, let me draw your attention to S&P 500 index funds, which are up 540% since the March 2009 market low (with a currency kicker on top for UK investors).