Income producing ITs instead of HYP

[BullDog]

Moderator Message:
Split off from here to keep that thread focused on SSE prelims. - Chris

And the important bits (which we already knew):

• Intention to recommend a final dividend of 60.2p for payment on 22 September 2022, representing a
weighted average annual RPI rate of 5.8%, making a full-year dividend of 85.7p per share.
• Continue to target RPI increase for FY23 followed by rebase to 60p in FY24, with attractive annual
growth of at least 5% to FY26.

So, a ~30% dividend cut coming down the track in two years time, taking perhaps another seven (ish) years growth at 5% to get back to current nominal level. God knows what inflation will do to the real value of that dividend in the meantime, perhaps halve it.

Personally I am not persuaded to buy more of a share near its all time high price, for income, knowing that cut is coming. No, it's more ITs for me...

Thanks, I am partially in the same frame of mind. But the income producing ITs are going to be at or close to ATHs too? Kind of a quandary, I think?

[fisher]

Thanks, I am partially in the same frame of mind. But the income producing ITs are going to be at or close to ATHs too? Kind of a quandary, I think?

How about Lindsell Train IT(LTI), currently at a slight discount to NAV and yielding circa 4.4%?

[BullDog]

Thanks, I am partially in the same frame of mind. But the income producing ITs are going to be at or close to ATHs too? Kind of a quandary, I think?

How about Lindsell Train IT(LTI), currently at a slight discount to NAV and yielding circa 4.4%?

Better nip this one in the bud... further discussion of IT's O/T here of course.

What we can discuss and why I'm put off by SSE is the prospective trend of it's dividend, compared to other alternatives on offer. Note the dividend cut that already happened.



Overlay RPI on that and it will certainly be off the scale above the RHS somewhere.

It's not a good look, for an income investor, is it?

Thank you. Might I venture to ask where in ITs you favour buying? I realise that might mean another thread outside the walled garden

[moorfield]

Thank you. Might I venture to ask where in ITs you favour buying? I realise that might mean another thread outside the walled garden

Sure, see viewtopic.php?p=494324#p494324

I am looking currently at building a spread of ~15 high yield IT's - chiefly a mixture of Equity, Property, Debt AIC sectors, and maybe following that some lower yield "growthy" ones with reinvested income.

[csearle]

Regarding ITs, In July 2021 I sold a bungalow and am adding to my HYP in an ISA annually, and also into my SIPP annually. I decided to use ITs in the SIPP and in the non-ISA account rather than HYP shares (to simplify the process of funding the ISA in future years).

At the moment I am down over 17% on the ITs (and that includes the increase in value through the tax-free contribution from HMRC and the accrued dividends). This represents (for me) a huge sum. I was hoping for much more stability from them.

In the same (admittedly short) period my boring HYP is up over 12%. I now regret not just replicating (or extending) my HYP within these other accounts.

Chris
PS I bought Henderson Opportunities Trust (HOT.L) and Schroder Asia Pacific Fund (SDP.L) - maybe my mistake was there?

[moorfield]

At the moment I am down over 17% on the ITs

In the same (admittedly short) period my boring HYP is up over 12%.

Capital, or Income ?

[Itsallaguess]

Regarding ITs, In July 2021 I sold a bungalow and am adding to my HYP in an ISA annually, and also into my SIPP annually. I decided to use ITs in the SIPP and in the non-ISA account rather than HYP shares (to simplify the process of funding the ISA in future years).

At the moment I am down over 17% on the ITs (and that includes the increase in value through the tax-free contribution from HMRC and the accrued dividends). This represents (for me) a huge sum. I was hoping for much more stability from them.

In the same (admittedly short) period my boring HYP is up over 12%. I now regret not just replicating (or extending) my HYP within these other accounts.

I bought Henderson Opportunities Trust (HOT.L) and Schroder Asia Pacific Fund (SDP.L) - maybe my mistake was there?

I'm not sure it's all that fair to compare the return on those two capital-growth oriented Investment Trusts with the return of an income-portfolio like a HYP though Chris -

Henderson Opportunities Investment Trust -

Objective - To achieve capital growth in excess of the FTSE All-Share Index from a portfolio of primarily UK investments.

https://www.theaic.co.uk/companydata/0P000069FA


Schroder AsiaPacific Investment Trust -

Objective - To achieve capital growth through investment primarily in equities of companies located in the continent of Asia excluding the Middle East and Japan, together with the Far Eastern countries bordering the Pacific Ocean.

https://www.theaic.co.uk/companydata/0P00008ZPI


Sorry Chris, but I don't think anyone would really consider either of those two IT's to be fairly comparable in this situation, and on the face of it the poor recent return on the above two growth-IT's looks to be reflective of a broad reduction in growth-facing investments in recent weeks and months, in a period where you do actually look to be confirming that your HYP income-related investments have actually held up comparatively well...

I've seen no such reduction in my income-oriented Investment Trusts, and I also think they're holding up well against other areas of the market....

Cheers,

Itsallaguess

[csearle]

At the moment I am down over 17% on the ITs

In the same (admittedly short) period my boring HYP is up over 12%.

Capital, or Income ?

Capital (including dividends).

[csearle]

Sorry Chris, but I don't think anyone would really consider either of those two IT's to be fairly comparable in this situation, and on the face of it the poor recent return on the above two growth-IT's looks to be reflective of a broad reduction in growth-facing investments in recent weeks and months, in a period where you do actually look to be confirming that income-related investments have actually held up comparatively well...

Cheers,

Yes well perhaps then making the comparison was a step too far. I was hoping to grow (or at least maintain) the capital for use later on. Perhaps it was the objectives you cite that made me think they would be good choices? From my perspective my capital is gone. I realise it is still short term but my experience with ITs has not been great (so far). Whatever diversity mine offered didn't work as I'd expected. With hindsight I would have done better stuffing banknotes under my mattress.

Chris

[Dod101]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome, or something like HFEL, all dividend and a negative share price growth so you need to be very careful.

Nearly all ITs will produce income, but very often at a much lower yield than a HYP portfolio. I am on the whole happy with that and so I hold Murray International and Murray Income for instance. I like to see a half decent yield but also the potential for some growth in the share price.

Infrastructure ITs or at least those with the same benefits, are good but mostly on premiums to NAV and so the yields can be quite modest. I do not see ITs as a real answer to the dilemma but at least we get wider diversity in the holdings and they have the ability to increase their dividends by distributing some capital in the form of their realised capital gains.

Dod

[Itsallaguess]

Sorry Chris, but I don't think anyone would really consider either of those two IT's to be fairly comparable in this situation, and on the face of it the poor recent return on the above two growth-IT's looks to be reflective of a broad reduction in growth-facing investments in recent weeks and months, in a period where you do actually look to be confirming that income-related investments have actually held up comparatively well...

Yes well perhaps then making the comparison was a step too far.

I was hoping to grow (or at least maintain) the capital for use later on. Perhaps it was the objectives you cite that made me think they would be good choices?

From my perspective my capital is gone. I realise it is still short term but my experience with ITs has not been great (so far). Whatever diversity mine offered didn't work as I'd expected. With hindsight I would have done better stuffing banknotes under my mattress.

I'm sorry to hear of your recent experience with the growth-investments Chris, but I think your focus on them being Investment Trusts is mislaid in this particular instance, and it's the unlucky timing of the recent poor performance of the underlying holdings that''s caused the drop in value, and not particularly the investment vehicle chosen.

Yes, they were diversified within themselves, but they've still been hit by a very broad recent re-rating of large sections of the growth-investment market, and I think that's very likely to have been the primary driver in the poor comparable performance, rather than them simply 'being Investment Trusts'....

Cheers,

Itsallaguess

[Itsallaguess]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome

I moved away from a single-share HYP portfolio many years ago now, and if all I was going to end up with was a bunch of IT's that held the same underlying UK-centric investments then I certainly wouldn't have bothered, but it was the fact that I could often move away from that particular type of UK-centric income-share that held one of the biggest benefits for me personally, and that's certainly been the case as I've built up much broader sectoral and geographic income-IT holdings over the years.

As an income-investor who definitely wants to own a portfolio that I can really class as being 'hands off' to a very large degree, it's been the single best decision that I've made...

Cheers,

Itsallaguess

[moorfield]

At the moment I am down over 17% on the ITs

In the same (admittedly short) period my boring HYP is up over 12%.

Capital, or Income ?

Capital (including dividends).

Ah, thought so. You'll be wanting to express your sentiments on the Capital producing ITs instead of HYP thread then.

[moorfield]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome, or something like HFEL, all dividend and a negative share price growth so you need to be very careful.

Nearly all ITs will produce income, but very often at a much lower yield than a HYP portfolio. I am on the whole happy with that and so I hold Murray International and Murray Income for instance. I like to see a half decent yield but also the potential for some growth in the share price.

I think for me the attraction is becoming the demonstrably less volatile income streams that ITs tend to produce year on year. And (on paper) I can certainly produce a portfolio yielding 1.5-2.0% more overall than the motley collection of blue chips (including SSE ) that is my current portfolio.

[Dod101]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome

I moved away from a single-share HYP portfolio many years ago now, and if all I was going to end up with was a bunch of IT's that held the same underlying UK-centric investments then I certainly wouldn't have bothered, but it was the fact that I could often move away from that particular type of UK-centric income-share that held one of the biggest benefits for me personally, and that's certainly been the case as I've built up much broader sectoral and geographic income-IT holdings over the years.

As an income-investor who definitely wants to own a portfolio that I can really class as being 'hands off' to a very large degree, it's been the single best decision that I've made...

Cheers,

Itsallaguess

Yes I had your views in mind when I wrote my last post. It is good that you are happy with your strategy because we all need to feel comfortable about these things. I am certainly not a HYPer although I do rely on what you call single share investments for much of my income and there are currently some high yields available with, it would seem, quite good security.

Dod

[88V8]

Regarding ITs, In July 2021 I sold a bungalow ...

Which has since risen in value how much...?
Timing, is a bu**er.

Many of my income ITs are down in SP. The income, not.
But right now we're sitting on six figures because I don't know where to invest without further falls.
My intention has been more ITs, but my most recent two purchases have been a DZ* HYP share, and a punt.

V8

*Luni Danger Zone, for new members.

[SalvorHardin]

What about Law Debenture? It now yields 3.74% after announcing a 5.5% increase in its quarterly dividend two days ago. It has increased its dividend by 100% in the last ten years.

Law Debenture's latest factsheet shows a top ten list of shareholdings which wouldn't be out of place in a typical HYP. However, Law Debenture is very different from the typical income investment trust thanks to its wholly owned professional services business. This business represents roughly 20% of the NAV (its valuation is only updated every six months) and it produces roughly 40% of Law Debenture's dividend.

"Declaring a first interim dividend of 7.25 pence per ordinary share payable in July 2022, representing an increase of 5.5% over the prior year's first interim dividend. It is the Board's intention for each of the first three interim dividends for 2022 to be equivalent to a quarter of Law Debenture's total 2021 dividend of 29.0 pence per ordinary share"

https://www.investegate.co.uk/law-debenture-corp/rns/dividend-declaration/202205251530058122M/

https://www.lawdebenture.com/investment-trust

Here's the TLF thread

https://www.lemonfool.co.uk/viewtopic.php?t=28087

[Charlottesquare]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome, or something like HFEL, all dividend and a negative share price growth so you need to be very careful.

Nearly all ITs will produce income, but very often at a much lower yield than a HYP portfolio. I am on the whole happy with that and so I hold Murray International and Murray Income for instance. I like to see a half decent yield but also the potential for some growth in the share price.

Infrastructure ITs or at least those with the same benefits, are good but mostly on premiums to NAV and so the yields can be quite modest. I do not see ITs as a real answer to the dilemma but at least we get wider diversity in the holdings and they have the ability to increase their dividends by distributing some capital in the form of their realised capital gains.

Dod

HFEL is not always negative price movement, my holding is up 4.06% (purchases 23/3/20, 25/3/20, 4/5/21,1/2/22 and 1/3/22) Now appreciate not stellar given 1/2 bought in 2020,1/6th in 2021 and 1/3 in 2022, but given dividends received over the period not woeful)

[Charlottesquare]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome, or something like HFEL, all dividend and a negative share price growth so you need to be very careful.

Nearly all ITs will produce income, but very often at a much lower yield than a HYP portfolio. I am on the whole happy with that and so I hold Murray International and Murray Income for instance. I like to see a half decent yield but also the potential for some growth in the share price.

Infrastructure ITs or at least those with the same benefits, are good but mostly on premiums to NAV and so the yields can be quite modest. I do not see ITs as a real answer to the dilemma but at least we get wider diversity in the holdings and they have the ability to increase their dividends by distributing some capital in the form of their realised capital gains.

Dod

They do though tend to have fewer corporate actions to deal with for the slothful or those that expect later years may make them slothful.

[Dod101]

The problem with income producing ITs is that often you just get more HYP shares with the same outcome, or something like HFEL, all dividend and a negative share price growth so you need to be very careful.

Nearly all ITs will produce income, but very often at a much lower yield than a HYP portfolio. I am on the whole happy with that and so I hold Murray International and Murray Income for instance. I like to see a half decent yield but also the potential for some growth in the share price.

Infrastructure ITs or at least those with the same benefits, are good but mostly on premiums to NAV and so the yields can be quite modest. I do not see ITs as a real answer to the dilemma but at least we get wider diversity in the holdings and they have the ability to increase their dividends by distributing some capital in the form of their realised capital gains.

Dod

HFEL is not always negative price movement, my holding is up 4.06% (purchases 23/3/20, 25/3/20, 4/5/21,1/2/22 and 1/3/22) Now appreciate not stellar given 1/2 bought in 2020,1/6th in 2021 and 1/3 in 2022, but given dividends received over the period not woeful)

As always it depends on the timescale and the period we are discussing. I could of course counter what you are claiming (over a different period) but there is no gainsaying that the income sort of makes up for the poor capital showing.

Dod