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Bearbull in the IC

General discussions about equity high-yield income strategies
Dod101
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Bearbull in the IC

#428374

Postby Dod101 » July 18th, 2021, 7:58 am

An interesting article in this week's IC re The Role of Dividends. It is of course behind the paywall but someone better at these things than me may be able to provide access. I could not find it via Mr Google.

His income portfolio generated 4.1% annualised yield for the half year to 30 June. He tells us that that is the best part of 1.5 times that of the FTSE All Share. He also comments on the benefit of reinvesting the dividends v reinvesting them, but that he takes the cash (and even puts some figures on it) Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.

In all a very apposite article for this Board, covering many of the points often discussed here.

Dod

Itsallaguess
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Re: Bearbull in the IC

#428375

Postby Itsallaguess » July 18th, 2021, 8:00 am

Dod101 wrote:
An interesting article in this week's IC re The Role of Dividends. It is of course behind the paywall but someone better at these things than me may be able to provide access. I could not find it via Mr Google.

His income portfolio generated 4.1% annualised yield for the half year to 30 June. He tells us that that is the best part of 1.5 times that of the FTSE All Share. He also comments on the benefit of reinvesting the dividends v reinvesting them, but that he takes the cash (and even puts some figures on it) Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.

In all a very apposite article for this Board, covering many of the points often discussed here.


Thanks Dod - and here's a link to the article itself - the first returned "The role of dividends" link from the following Google search URL -

https://www.google.com/search?q=investors+chronicle+%22the+role+of+dividends%22

Cheers,

Itsallaguess

Dod101
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Re: Bearbull in the IC

#428376

Postby Dod101 » July 18th, 2021, 8:06 am

Itsallaguess wrote:
Dod101 wrote:
An interesting article in this week's IC re The Role of Dividends. It is of course behind the paywall but someone better at these things than me may be able to provide access. I could not find it via Mr Google.

His income portfolio generated 4.1% annualised yield for the half year to 30 June. He tells us that that is the best part of 1.5 times that of the FTSE All Share. He also comments on the benefit of reinvesting the dividends v reinvesting them, but that he takes the cash (and even puts some figures on it) Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.

In all a very apposite article for this Board, covering many of the points often discussed here.


Thanks Dod - and here's a link to the article itself - the first returned "The role of dividends" link from the following Google search URL -

https://www.google.com/search?q=investors+chronicle+%22the+role+of+dividends%22

Cheers,

Itsallaguess


Thank you IAAG. I did that. I got a reference to the article but it would not open up for me. Anyway well worth a read I think. I find Bearbull often more practical for me than some commentators.

Dod

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Re: Bearbull in the IC

#428377

Postby Itsallaguess » July 18th, 2021, 8:17 am

Dod101 wrote:
He also comments on the benefit of reinvesting the dividends v reinvesting them, but that he takes the cash (and even puts some figures on it)

Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.


Although he does highlight that your second point becomes a little more nuanced where income-investors might be re-investing dividends, as those re-invested dividends then turn back into 'invested capital', which is then faced with that additional 'capital volatility'...

I prefer to see re-invested dividends as 'buying more income' myself, but the point he's making is quite valid of course, if we're looking at different levels of long-term volatility between capital and dividends....

Cheers,

Itsallaguess

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Re: Bearbull in the IC

#428381

Postby Dod101 » July 18th, 2021, 8:32 am

Itsallaguess wrote:
Dod101 wrote:
He also comments on the benefit of reinvesting the dividends v reinvesting them, but that he takes the cash (and even puts some figures on it)

Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.


Although he does highlight that your second point becomes a little more nuanced where income-investors might be re-investing dividends, as those re-invested dividends then turn back into 'invested capital', which is then faced with that additional 'capital volatility'...

I prefer to see re-invested dividends as 'buying more income' myself, but the point he's making is quite valid of course, if we're looking at different levels of long-term volatility between capital and dividends....

Cheers,

Itsallaguess


Thanks. I should of course have said in the first sentence above, 'the benefits of reinvesting the dividends vis a vis taking them as cash' Too early on a Sunday morning when I wrote it!

I think you highlight two ways of looking at the same point but his point is made from the point of view of someone dedicated to withdrawing the dividends, it would seem as a matter of policy, and not the 'mix and match' style that some of us in real life actually do.

I am in his camp and if I have surplus income I tend to give it away one way or another. I think it may have been in the FT yesterday but I read somewhere of the reluctance of people like me (getting on in life that is to say) being reluctant to spend or give money away when they can well afford to.

On the matter of volatility of capital and income, I think provided you have a suitable cash reserve, it can be downplayed much more than it is. People spend far too much time and energy analysing a largely non existent problem. I am not denying volatility but I do think far too much energy is spent worrying about it.

Dod

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Re: Bearbull in the IC

#428399

Postby GoSeigen » July 18th, 2021, 10:07 am

Dod101 wrote:Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.


It's not true though, is it?

-First of all, the moment the dividend is paid all the value of the dividend "is taken away" immediately in the form of a drop in the value of the shares you hold, which would not have happened if the divided had not been paid.
-Further, if you are positing nefarious events after the dividend payment (or non-payment) date, then your shareholding is STILL affected by whatever happens, it's just that the effect of that value-loss on your holding is maybe 2% less (depending on the size of the interim/final dividend) than it might otherwise have been. 2% difference is barely material in my book.


GS

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Re: Bearbull in the IC

#428401

Postby dealtn » July 18th, 2021, 10:16 am

GoSeigen wrote:
Dod101 wrote:Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.


It's not true though, is it?

-First of all, the moment the dividend is paid all the value of the dividend "is taken away" immediately in the form of a drop in the value of the shares you hold, which would not have happened if the divided had not been paid.
-Further, if you are positing nefarious events after the dividend payment (or non-payment) date, then your shareholding is STILL affected by whatever happens, it's just that the effect of that value-loss on your holding is maybe 2% less (depending on the size of the interim/final dividend) than it might otherwise have been. 2% difference is barely material in my book.


GS


In the same way as selling 2% of your capital ensures it can "never be taken away".

Or reinvesting a 2% paid out as dividend negates that "never can be taken away".

Money is money is money, and fungible. All the difference is between those that are happy to "sub-contract" those decisions to a small group of mainly middle aged men meeting a few times each year, and those that make their own decisions on how their money is invested, and reallocated.

Granted there is a lot to be said about the frictional trading costs, frictional taxes, and for some frictional "effort" in deciding their own affairs. And the default "do nothing" option has appeal. But unless one is truly using dividends as income for consumption, reinvesting, in what, and when, is decision making in itself.

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Re: Bearbull in the IC

#428404

Postby Itsallaguess » July 18th, 2021, 10:24 am

Dod101 wrote:
On the matter of volatility of capital and income, I think provided you have a suitable cash reserve, it can be downplayed much more than it is.

People spend far too much time and energy analysing a largely non existent problem. I am not denying volatility but I do think far too much energy is spent worrying about it.


I think that's one of those topics that crops up often enough though, by people who may still be in the 'thinking about it' stage of making sure there's enough reserve provision, that it then might give the impression that 'too much energy is spent worrying about it', when it's perhaps different sets of people taking part in the discussions each time...

I'm not sure too much energy is spent worrying about it by those that have already worried about it, and who have given themselves a suitable level of reserve provision, so I think you might be conflating two different sets of people there, with regards to the many discussions that have occurred on these boards over the years.

Personally, I think it's a very important area which I've touched on in a separate post earlier this morning (https://www.lemonfool.co.uk/viewtopic.php?f=8&t=13633&p=428373#p428373), and whilst I will of course defer to your long term experience with having retired, and seen that a good level of provision (for your situation..) does the job adequately, I don't think there's too much harm in openly discussing those provisions or possible provisions as often as it does crop up, given the clear importance of them to the long term success of our individual investment strategies...

So yes, I agree that once you've got those reserve provisions and you're happy with them, I don't think there's too much benefit in fretting about them too much, which is where I think you're coming from, but I think that's slightly different to perhaps discussing the size or shape of such provisions if you've perhaps not yet adequately provided for them...

Cheers,

Itsallaguess

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Re: Bearbull in the IC

#428417

Postby Itsallaguess » July 18th, 2021, 10:49 am

dealtn wrote:
Granted there is a lot to be said about the frictional trading costs, frictional taxes, and for some frictional "effort" in deciding their own affairs.

And the default "do nothing" option has appeal.

But unless one is truly using dividends as income for consumption, reinvesting, in what, and when, is decision making in itself.


Agreed - re-investing dividends is of course 'decision making in itself', but as someone who's still building their income portfolio whilst still working, and of course periodically re-investing as part of that process, I personally think it's a price worth paying given two reasons -

1. It's done from a position of being able to say 'If I *wasn't* working, and was wanting to rely on 'do nothing' dividend income, then I can generally have a good long-term idea *of* that level of income, given that it would be a simple case of just 'taking' the income, rather than 're-investing it' - and this is, for me, a compelling advantage of a long-term income-investment strategy over both the building and the 'taking' stages...

2. Carrying out the above approach, it allows me to monitor the internally-generated dividend income, whether it were to ultimately be re-invested or taken as spending, and it then gives me the opportunity to make my future plans *based* on that long-term trend of overall 'income' and the volatility of it over many years, without necessarily having to switch strategies at different stages.

I absolutely appreciate that there's likely to be some sort of long-term, TR-based 'performance-cost' with taking the above approach, but the ultimate 'do nothing' end-result which specifically aligns with gaining long-term visibility of just *what* the delivered outcome of that ultimate 'do nothing' approach is likely to be once I've finished work, feels like a cost worth paying where it suits my own long-term situation..

Cheers,

Itsallaguess
Last edited by Itsallaguess on July 18th, 2021, 10:52 am, edited 2 times in total.

Dod101
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Re: Bearbull in the IC

#428418

Postby Dod101 » July 18th, 2021, 10:52 am

GoSeigen wrote:
Dod101 wrote:Another point that I learned long ago is that a dividend once paid can never be taken away whereas a capital gain is not nearly so durable and any gain can be 'taken back' overnight.


It's not true though, is it?

-First of all, the moment the dividend is paid all the value of the dividend "is taken away" immediately in the form of a drop in the value of the shares you hold, which would not have happened if the divided had not been paid.
-Further, if you are positing nefarious events after the dividend payment (or non-payment) date, then your shareholding is STILL affected by whatever happens, it's just that the effect of that value-loss on your holding is maybe 2% less (depending on the size of the interim/final dividend) than it might otherwise have been. 2% difference is barely material in my book.


GS


Yes but I am sure you are just being pedantic for the sake of an argument. What the author meant was that for simple souls like me who like having dividends in the form of cash drop in to their bank account (at no cost to them) that is cash in the bank which they are free to spend. If a share increases in value one day by 10% say, suddenly the owner is worth 10% more, but the same 10% or more can be lost just as easily the next day. The dividend, whatever happens to the share price is still in the holder's bank unchanged.

Dod

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Re: Bearbull in the IC

#428421

Postby Dod101 » July 18th, 2021, 10:56 am

dealtn wrote:Money is money is money, and fungible. All the difference is between those that are happy to "sub-contract" those decisions to a small group of mainly middle aged men meeting a few times each year, and those that make their own decisions on how their money is invested, and reallocated


I have no idea what the author is writing about. Sounds like investment trusts or other funds, although what this has to do with reinvestng dividends or not is beyond me.

I found the article interesting.

Dod

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Re: Bearbull in the IC

#428427

Postby mc2fool » July 18th, 2021, 11:21 am

Dod101 wrote:I think it may have been in the FT yesterday but I read somewhere of the reluctance of people like me (getting on in life that is to say) being reluctant to spend or give money away when they can well afford to.

Perhaps Chris Dillow's article also in the latest IC, "We'd have a more comfortable retirement if we ran down our wealth, but there are powerful psychological forces stopping us doing so"?

It's titled "Why we cling onto our wealth" in the paper edition (p14-15) and just "Clinging onto wealth" in the online edition.

https://www.investorschronicle.co.uk/news/2021/07/14/clinging-onto-wealth/, for those registered with the IC
https://www.google.com/search?q=investors+chronicle+"clinging+onto+wealth", for those not.

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Re: Bearbull in the IC

#428438

Postby Itsallaguess » July 18th, 2021, 11:48 am

mc2fool wrote:
Dod101 wrote:
I think it may have been in the FT yesterday but I read somewhere of the reluctance of people like me (getting on in life that is to say) being reluctant to spend or give money away when they can well afford to.


Perhaps Chris Dillow's article also in the latest IC, "We'd have a more comfortable retirement if we ran down our wealth, but there are powerful psychological forces stopping us doing so"?

It's titled "Why we cling onto our wealth" in the paper edition (p14-15) and just "Clinging onto wealth" in the online edition.

https://www.investorschronicle.co.uk/news/2021/07/14/clinging-onto-wealth/, for those registered with the IC
https://www.google.com/search?q=investors+chronicle+"clinging+onto+wealth", for those not.


Interesting article - thanks - but what an awful turn of phrase 'dis-save' is when he repeatedly discusses the process of de-accumulation...

I liked the passages at the end of the article -

Some of us are working too long or spending too little to maintain our wealth simply because it has become a reference point, even if we have more money than we need and if it has been boosted by the good luck of recent high returns.

In this way, instead of us managing our wealth our wealth manages us. As one well-known philosopher said, man “is governed by the products of his own hand.”


Old habits do indeed die hard...

Cheers,

Itsallaguess

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Re: Bearbull in the IC

#428458

Postby Dod101 » July 18th, 2021, 12:57 pm

mc2fool wrote:
Dod101 wrote:I think it may have been in the FT yesterday but I read somewhere of the reluctance of people like me (getting on in life that is to say) being reluctant to spend or give money away when they can well afford to.

Perhaps Chris Dillow's article also in the latest IC, "We'd have a more comfortable retirement if we ran down our wealth, but there are powerful psychological forces stopping us doing so"?

It's titled "Why we cling onto our wealth" in the paper edition (p14-15) and just "Clinging onto wealth" in the online edition.

https://www.investorschronicle.co.uk/news/2021/07/14/clinging-onto-wealth/, for those registered with the IC
https://www.google.com/search?q=investors+chronicle+"clinging+onto+wealth", for those not.


The very article thank you mc2fool. Told you I was getting old. That is though another interesting article. I do not always like or at least appreciate Chris Dillow's offerings but I thought that was good.

In fact I might claim that the two articles are particularly pertinent for someone who has retired and pertinent even for those contemplating that point.

Dod

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Re: Bearbull in the IC

#428654

Postby torata » July 19th, 2021, 12:39 am

Dod101 wrote:
mc2fool wrote:
Dod101 wrote:I think it may have been in the FT yesterday but I read somewhere of the reluctance of people like me (getting on in life that is to say) being reluctant to spend or give money away when they can well afford to.

Perhaps Chris Dillow's article also in the latest IC, "We'd have a more comfortable retirement if we ran down our wealth, but there are powerful psychological forces stopping us doing so"?

It's titled "Why we cling onto our wealth" in the paper edition (p14-15) and just "Clinging onto wealth" in the online edition.

https://www.investorschronicle.co.uk/news/2021/07/14/clinging-onto-wealth/, for those registered with the IC
https://www.google.com/search?q=investors+chronicle+"clinging+onto+wealth", for those not.


The very article thank you mc2fool. Told you I was getting old.

Dod


Actually, Dod, your memory didn't fail you. It was reprinted in the FT online, tagged onto the end of the "Companies analysis from our sister publication" segment.

torata

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Re: Bearbull in the IC

#428655

Postby 1nvest » July 19th, 2021, 1:44 am

mc2fool wrote:Perhaps Chris Dillow's article also in the latest IC, "We'd have a more comfortable retirement if we ran down our wealth

Opting for a 30 year drawdown, applied to total return and spend 1/30th the first year, 1/29th the next ...etc. ... and IF you get to 30 years your average DIY 'dividend' would be 13.3%.

Allocate 17% of capital to a stock accumulation fund and there's a good prospect that after 30 years that would have grown to a inflation adjusted capital value comparable to 100% of the original start date capital.

Start with 83% in inflation bonds, to cover 30 years of spending, 17% to growth/stock-accumulation, and over 30 years that 17/83 stock/bond transitions to being 100/0 stock/bonds, averages 58.5/41.5, and tends to leave a appropriate stock-heavy portfolio for younger heirs. A good choice if the start date valuations are relatively high. Others are content to round that up to 60/40 and constant weight (rebalance) to that.

A risk is that we are too focused upon leaving to heirs wealth that they might not actually need and that they might just waste, at the expense of being too frugal ourselves.

Dod101
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Re: Bearbull in the IC

#428662

Postby Dod101 » July 19th, 2021, 6:47 am

1nvest wrote:
mc2fool wrote:Perhaps Chris Dillow's article also in the latest IC, "We'd have a more comfortable retirement if we ran down our wealth

Opting for a 30 year drawdown, applied to total return and spend 1/30th the first year, 1/29th the next ...etc. ... and IF you get to 30 years your average DIY 'dividend' would be 13.3%.

Allocate 17% of capital to a stock accumulation fund and there's a good prospect that after 30 years that would have grown to a inflation adjusted capital value comparable to 100% of the original start date capital.

Start with 83% in inflation bonds, to cover 30 years of spending, 17% to growth/stock-accumulation, and over 30 years that 17/83 stock/bond transitions to being 100/0 stock/bonds, averages 58.5/41.5, and tends to leave a appropriate stock-heavy portfolio for younger heirs. A good choice if the start date valuations are relatively high. Others are content to round that up to 60/40 and constant weight (rebalance) to that.

A risk is that we are too focused upon leaving to heirs wealth that they might not actually need and that they might just waste, at the expense of being too frugal ourselves.


I must say I have never had any significant inheritance and maybe coloured by that I have never seen the need to in any way prioritise inheritance to my heirs. Looks like they will do OK mind you but I am occasionally genuinely surprised that some seem to prioritise that. In fact I have left a chunk of my assets to charities that I feel strongly about (not cats and dogs homes!) and to my grandchildren. I am now on my own and do not spend a lot of money and undoubtedly fall in to the sort of situation that Chris Dillow writes about. I so much regret the closure of world travel since March 2020 because that is where my (rather expensive) interests lie.

Dod

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Re: Bearbull in the IC

#428666

Postby Dod101 » July 19th, 2021, 7:21 am

Yes I helped out my heirs with first house purchase and so on and some generous at the time help with their expenses for University etc as well. As RVF says that is the time they need financial help.

Dod


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