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Investment Trust dividends - where next?

General discussions about equity high-yield income strategies
funduffer
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Investment Trust dividends - where next?

#360519

Postby funduffer » November 27th, 2020, 9:30 am

I have a portfolio of 10 higher yielding Investment Trusts, all of which have managed to hold or increase their dividends this year.

The latest to announce is Aberdeen Standard Equity Income Trust (ASEI), which has managed to marginally increase this year's dividend over last year.

I was struck by their comments in the final report, which can be found here:

https://www.investegate.co.uk/aberdeen- ... 00045366G/

A few quotes:

I am sorry that in my last report to you as Chairman I have to discuss what has been a most challenging year for our Company, whose portfolio has, for a second year in succession, produced a very disappointing result. Net Asset Value fell by 30.1%, much worse than the 19.2% fall in the FTSE All-Share Index, and also worse than nearly all our peers in the UK Equity Income peer group of investment trusts. In Total Return terms the comparison is similar, with our negative return of 25.7% worse than the index's 16.6%. Unlike last year, when we had an even poorer relative outcome in capital terms but earned enough to increase the dividend by 6.8% while adding £750,000 to revenue reserves, our dividend income suffered a decline of 26.3% as over half of our portfolio holdings either cut or eliminated their dividends from March onwards. Earnings per share were 15.61p, a decline of 28.2% from the previous year, substantially less than our dividend per share of 20.6p.


So the overall results have been poor, relative to the FTSE and IT peer group.

Our basic assumption has been that our shareholders are interested above all in the dividends they can expect from their investment in the Company, bearing in mind that the Company's stated objective is, and has always been since its launch in 1991, "To provide shareholders with an above average income from their equity investment, while also providing real growth in capital and income". It seems to us that today, when interest rates available on bank deposits are tiny to non-existent, and on government and corporate debt the lowest ever recorded, the high income the Company currently provides has never been more valuable.


Investors in ASEI want high yield, no surprise there then!

The conclusion of our discussions has been that for now we should carry on with the existing policy and management arrangements, utilising the revenue reserves which have been built up over the Company's almost 29 year life to maintain the dividend at its current level, and indeed, by making marginal increases, continue the now twenty year record of nominal increases, until dividends can again be covered by annual earnings. We expect that this position can be reached without exhausting revenue reserves given the combination of dividend reinstatements and portfolio adjustments made by the Manager designed to increase our revenues. If so, shareholders will have had an investment which has given them a yield of 6.9%, with the prospect of a rising dividend thereafter. In those circumstances, we would expect that the Company's shares would be trading at a significantly lower yield than today's, with a corresponding uplift in the share price having occurred.


They don't want to give up their 20 year record of increasing dividends.

Against that backdrop, and as suggested in the Company's Half Yearly Report to 31 March 2020, the Board announces a fourth interim dividend of 5.0 pence per share which will be paid on 30 December 2020 to shareholders on the Register on 4 December 2020, with an associated ex-dividend date of 3 December 2020. This takes the total dividend for the year to 20.6 per share, which is a 0.5% increase on the dividend in 2019 and the 20th consecutive annual dividend increase paid by the Company.


So the dividend increases again for the 20th consecutive year, by 0.5%.

I am sure that similar discussion have been held at many of the board meetings of equity income IT's, and probably all have reached similar conclusions.

If they are right, I think we can expect another year in 2021 of flat or slowly rising dividends from these type of IT's.

Good news for us investing for income types!

FD

pyad
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Re: Investment Trust dividends - where next?

#360526

Postby pyad » November 27th, 2020, 10:10 am

funduffer wrote:...I am sure that similar discussion have been held at many of the board meetings of equity income IT's, and probably all have reached similar conclusions.

If they are right, I think we can expect another year in 2021 of flat or slowly rising dividends from these type of IT's.

Good news for us investing for income types!

FD


Probably all have reached similar conclusions?

Like Temple Bar you mean, (see thread below) an IT in the UK equity income sector and major dividend slasher. Really good news there I'd say, for us investing for income types!

Arborbridge
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Re: Investment Trust dividends - where next?

#360532

Postby Arborbridge » November 27th, 2020, 10:18 am

pyad wrote:
funduffer wrote:...I am sure that similar discussion have been held at many of the board meetings of equity income IT's, and probably all have reached similar conclusions.

If they are right, I think we can expect another year in 2021 of flat or slowly rising dividends from these type of IT's.

Good news for us investing for income types!

FD


Probably all have reached similar conclusions?

Like Temple Bar you mean, (see thread below) an IT in the UK equity income sector and major dividend slasher. Really good news there I'd say, for us investing for income types!


This year will be really interesting: will HYP income bounce back and IT income slow down? Will HYP overtake the other in my case? - I'm guessing not. I would guess ITs have a good chance of providing a higher rate of increase over several years than my HYP has, but I am really looking forward to finding out.

Arb.

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Re: Investment Trust dividends - where next?

#360541

Postby Dod101 » November 27th, 2020, 10:48 am

An IT like ASEI will I imagine be trading at a discount to NAV. The best thing that such an IT could do would be to wind itself up or do what PLI did and sell itself to some other trust. Talk about dearly bought income!. IT is a true disaster and should be put out of its misery. But Aberdeen need the funds so that will not happen.

Dod

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Re: Investment Trust dividends - where next?

#360552

Postby funduffer » November 27th, 2020, 11:25 am

Dod101 wrote:An IT like ASEI will I imagine be trading at a discount to NAV. The best thing that such an IT could do would be to wind itself up or do what PLI did and sell itself to some other trust. Talk about dearly bought income!. IT is a true disaster and should be put out of its misery. But Aberdeen need the funds so that will not happen.

Dod


You are right it is trading at a discount of 7.9% currently.

The board did consider merging with another trust, or changing management, but decided this would lead to a dividend reduction so have decided to carry on.

They certainly seem to value their dividend, and seem to think their investors do also.

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Re: Investment Trust dividends - where next?

#360554

Postby 77ss » November 27th, 2020, 11:27 am

Dod101 wrote:An IT like ASEI will I imagine be trading at a discount to NAV. The best thing that such an IT could do would be to wind itself up or do what PLI did and sell itself to some other trust. Talk about dearly bought income!. IT is a true disaster and should be put out of its misery. But Aberdeen need the funds so that will not happen.

Dod


Spot on Dod. A 5yr total return of -17.36. Dearly bought income indeed. The trust's objective (from the AIC site) being To provide shareholders with an above average income from their equity investment, while also providing real growth in capital and income.

Maybe the only way from here is up, but that is surely a gamble. Looking at their current top holdings, it is not obvious to me how they have contrived to lose so much money.

88V8
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Re: Investment Trust dividends - where next?

#360556

Postby 88V8 » November 27th, 2020, 11:28 am

Temple Bar.. a somewhat cockup.
On the whole, I expect that income ITs with a long record will defend it to the last drop of their bonuses.
A long record is an irreplaceable moat for investors who set store by such things.

The trade-off will indeed be a period of minimal rises, for investors who prefer to avoid bumps in their income the trade-off will be tolerable.

The equity portion of my HYP will be lumpy this year, but I expect MUT, CTY, MRCH, JCH and even HFEL and hopefully SHRS Shires Income to bob along with minimal disturbance.

The FI portion of my HYP has so far been totally undisturbed, yea, even the Banks Prefs have paid.

V8

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Re: Investment Trust dividends - where next?

#360559

Postby Arborbridge » November 27th, 2020, 11:33 am

77ss wrote:
Dod101 wrote:An IT like ASEI will I imagine be trading at a discount to NAV. The best thing that such an IT could do would be to wind itself up or do what PLI did and sell itself to some other trust. Talk about dearly bought income!. IT is a true disaster and should be put out of its misery. But Aberdeen need the funds so that will not happen.

Dod


Spot on Dod. A 5yr total return of -17.36. Dearly bought income indeed. The trust's objective (from the AIC site) being To provide shareholders with an above average income from their equity investment, while also providing real growth in capital and income.

Maybe the only way from here is up, but that is surely a gamble. Looking at their current top holdings, it is not obvious to me how they have contrived to lose so much money.


I too was looking at their top holdings and wondering what made the difference. A quick glance doesn't show why this trust show be a poor performer, yet others with similar holdings are not doing quite so badly.

Arb.

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Re: Investment Trust dividends - where next?

#360579

Postby 77ss » November 27th, 2020, 12:01 pm

ReallyVeryFoolish wrote:.....
Perhaps looking at past factsheets for a year or two may shed light on that. They may have shuffled the portfolio so today's holdings may not be the reason for the last 5 years of effectively turning capital into income?

RVF


Obviously. But I am not preared to invest the time.

Arborbridge
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Re: Investment Trust dividends - where next?

#360583

Postby Arborbridge » November 27th, 2020, 12:07 pm

ReallyVeryFoolish wrote:Perhaps looking at past factsheets for a year or two may shed light on that. They may have shuffled the portfolio so today's holdings may not be the reason for the last 5 years of effectively turning capital into income?

RVF


Yes, it's all a matter of timing etc etc. Yet these trusts do not seem to alter their holdings very much - they tend to hang on to the core and make changes at the periphery.

What I do know, is that fishing in the same pond can produce radically different results!

Arb.

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Re: Investment Trust dividends - where next?

#360585

Postby monabri » November 27th, 2020, 12:11 pm

ReallyVeryFoolish wrote:Perhaps looking at past factsheets for a year or two may shed light on that. They may have shuffled the portfolio so today's holdings may not be the reason for the last 5 years of effectively turning capital into income?

RVF


That would be my guess as to what has happened.

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Re: Investment Trust dividends - where next?

#360754

Postby Itsallaguess » November 27th, 2020, 9:24 pm

pyad wrote:
funduffer wrote:
...I am sure that similar discussion have been held at many of the board meetings of equity income IT's, and probably all have reached similar conclusions.

If they are right, I think we can expect another year in 2021 of flat or slowly rising dividends from these type of IT's.

Good news for us investing for income types!


Probably all have reached similar conclusions?

Like Temple Bar you mean, (see thread below) an IT in the UK equity income sector and major dividend slasher.


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

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Re: Investment Trust dividends - where next?

#360833

Postby pyad » November 28th, 2020, 11:15 am

Itsallaguess wrote: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


It wasn't me who noticed the Temple Bar hit, I don't follow it, but I saw the thread below which featured the div cut and it struck me that it contrasted glaringly with the claim that started this thread about equity income IT divs. I'm guessing that Temple Bar's cut must have been a shock to holders who thought that div increases would go on forever, given its long history of doing so.

I'd add that contrary to what you may think, I have nothing in principle at all against ITs or other pooled investments and they clearly suit a lot of investors, both income or gain seekers or a combination of the two. You won't be aware of this but I have repeatedly over the years directed many investors towards collective approaches where they might not be suited in personality to individual share holding.

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?)

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Re: Investment Trust dividends - where next?

#360841

Postby Arborbridge » November 28th, 2020, 11:36 am

I think most here are aware of the danger within the IT type investment - they are probably running on reserves, and incomes will drop or be static once the Directors decided enough is enough.

The difference is that HYP income has reduced significantly and immediately, whereas IT income is running on the reserve fuel tank.

For someone wanting a steady flow of income, hte IT way has much to recommend it. In my case, holding a large group of ITs has held my drop in overall income to a manageable level. The decrease in my HYP income to this date is around 42%, whereas my ITs have given an increase. Even separating out the foreign holdings and viewing only the UK ITs wouldn't make the ITs look inferior to HYP.

HYP used to be able to boast a higher yield, but whether it does presently is not clear - not clear because IT yield is not forecast and HYP yield is uncertain (though growing clearer).

In short, I'm glad to have constructed my sources of income in a varied manner.

Arb.

OldPlodder

Re: Investment Trust dividends - where next?

#360883

Postby OldPlodder » November 28th, 2020, 2:48 pm

We abandoned investing in individual Cos many years ago, as there was not much point from our point of view We could get just as good an overall portfolios performance, much much less corporate events hassle, a just as easily adjusted of balance between growth and income/value(which we gradually altered as retirement approached), much lower variability, easily much deeper diversity across regions and 'sectors', a much smoother flow of divis pouring in to be reinvested(and this paid off massively on occasion), and more recently to be partially used to fund our retirement. In the earlier years it was only ITs, but we also hold a few ETFs for specific 'aspects or themes' we are interested in. ITs are like individual Cos in one respect imho , they need to be chosen with care, and watched for important developments. We would have been much worse off not keeping a sensible hand on the tiller.

Plodder

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Re: Investment Trust dividends - where next?

#360891

Postby Dod101 » November 28th, 2020, 3:10 pm

For once I agree with pyad in his recent comments. I do not think though that the dividend cut with Temple Bar was altogether a surprise as it has been struggling for some time.

I think that Arb has hit the nail on the head, that we income investors must have a variety of sources of income. I have a sort of HYP, an IT mixture between income and growth and some bond funds. Overall I am likely to be down around 15% this year, much of that down to the dividend cancellation from HSBC. The ITs have held up well.

To echo plodder, all investments ought to be tended with care, like a portfolio of anything.

Dod

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Re: Investment Trust dividends - where next?

#360899

Postby Itsallaguess » November 28th, 2020, 3:28 pm

pyad wrote:
Itsallaguess wrote:
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...


It wasn't me who noticed the Temple Bar hit, I don't follow it, but I saw the thread below which featured the div cut and it struck me that it contrasted glaringly with the claim that started this thread about equity income IT divs.

I'm guessing that Temple Bar's cut must have been a shock to holders who thought that div increases would go on forever, given its long history of doing so.


I just thought it was funny the way that the 25% TMPL dividend cut has been leapt on, and I'm sure that the irony isn't lost on you that the market that Temple Bar themselves are very predominantly invested in is the very same UK market that the HYP rules 'force' HYP income-investors into in a very focussed way...


pyad wrote:
I'd add that contrary to what you may think, I have nothing in principle at all against ITs or other pooled investments and they clearly suit a lot of investors, both income or gain seekers or a combination of the two.

You won't be aware of this but I have repeatedly over the years directed many investors towards collective approaches where they might not be suited in personality to individual share holding.


No, I wasn't aware of that, and it's interesting to hear of you taking a more reasonable approach in those situations than the impression I've had from you over the years on these boards, where things like HYP income and capital volatility has in the past been dismissed as something that investors simply 'need to accept', so it's good to hear that you do sometimes give some broader advice regarding income-collectives, which can often reduce the wider volatility seen in a UK-market focussed, single-share portfolio with a relatively small number of holdings...

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

Is there a reason that you've not mentioned taking that approach before, because it does seem to be quite a revelation to be hearing you say that?

Cheers,

Itsallaguess

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Re: Investment Trust dividends - where next?

#360906

Postby Lootman » November 28th, 2020, 3:48 pm

pyad wrote:You won't be aware of this but I have repeatedly over the years directed many investors towards collective approaches where they might not be suited in personality to individual share holding.

In what capacity do or did you give formal investment advice? Obviously you opine here as we all do. But to legally give paid advice you have to have various professional qualifications and licenses, and pass exams. This includes performing "know your client" due diligence that goes way beyond a mere assessment of personality.

I was not aware that anyone on TLF, other than the departed Coleyfish, is or was a professional investment adviser. Being a former accountant doesn't count in that regard. Nor would I count myself in that category even though, unlike you, I worked in the City for twenty years.

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Re: Investment Trust dividends - where next?

#360913

Postby Dod101 » November 28th, 2020, 4:04 pm

Lootman wrote:
pyad wrote:You won't be aware of this but I have repeatedly over the years directed many investors towards collective approaches where they might not be suited in personality to individual share holding.

In what capacity do or did you give formal investment advice? Obviously you opine here as we all do. But to legally give paid advice you have to have various professional qualifications and licenses, and pass exams. This includes performing "know your client" due diligence that goes way beyond a mere assessment of personality.

I was not aware that anyone on TLF, other than the departed Coleyfish, is or was a professional investment adviser. Being a former accountant doesn't count in that regard. Nor would I count myself in that category even though, unlike you, I worked in the City for twenty years.


There was a time of course when almost anyone could call themselves an investment adviser. I am not quite ancient but I do remember these days.

Dod

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Re: Investment Trust dividends - where next?

#360922

Postby Lootman » November 28th, 2020, 4:40 pm

Dod101 wrote:
Lootman wrote:
pyad wrote:You won't be aware of this but I have repeatedly over the years directed many investors towards collective approaches where they might not be suited in personality to individual share holding.

In what capacity do or did you give formal investment advice? Obviously you opine here as we all do. But to legally give paid advice you have to have various professional qualifications and licenses, and pass exams. This includes performing "know your client" due diligence that goes way beyond a mere assessment of personality.

I was not aware that anyone on TLF, other than the departed Coleyfish, is or was a professional investment adviser. Being a former accountant doesn't count in that regard. Nor would I count myself in that category even though, unlike you, I worked in the City for twenty years.

There was a time of course when almost anyone could call themselves an investment adviser. I am not quite ancient but I do remember these days.

Yes, it could have been a long time ago certainly. I think the regulations around investment advice have been growing gradually over time. I recall doing some part of the qualification for it in the 1990s but then my career took another route.

At one point I was sent out to give "advice" but we were careful to position it as "education" in order to get around the restrictions. So I could give a seminar but had to route requests for individual advice to a qualified and licensed colleague.


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