Dividend stocks appeal to older investors

[Lootman]

I suspect that, like Lootman, I probably look more at cash flow as well rather than income. Certainly I do not pay myself a regular monthly income. I just draw it as I need it

What matters from an IHT and regular gifts from income perspective is the annual income of the person making the gifts. Cash from disposals, however illogical, do not count as income. If the regular gifts from income do not affect the lifestyle of the person making the gifts they can be excluded from the estate.

Yes but the cash proceeds from sales can pay my bills, meaning that my "income" surplus to needs is greater. So doesn't it come down to the same thing?

[Dod101]

Actually before the advent of an active stockmarket, dividends were the reward shareholders got for subscribing to a venture and I tend to look at them like that today. They are after all, usually a share of the venture's profits, the whole point of investing.

Whether it is optimal or not I know not, but I do know that a lot of things may not be optimal but we do them anyway. I rely on generating an income from my portfolio and it is optimal for me in terms of convenience to take the dividends as offered to me and use them to live off. In fact I have some surplus most years and tend to give away that surplus because I cannot really see the need to keep adding the surplus to my investments

Dod

There can be good reasons to prefer dividends over income from capital gains. For example, from an inheritance tax perspective, having dividends coming in is advantageous as you can make IHT free gifts from income, but gifts outside the normal allowances from capital gains are considered PETs.

With respect, you are full of categorical statements and this is another of them which I do not believe to be necessarily the case. I have no idea what could be the difference just because my income might derive from say selling a share rather than simply taking a dividend. I might have nothing but a pile of cash from which to manufacture an income, but if I chose to make a gift from some of that it does not automatically mean it is a PET. At least I would argue that because money is fungible. My only regular source of an income is my State Pension. All other expense derives from a mixture of dividends, occasional capital sales (whether that results in a profit or a loss) and sometimes using money on deposit (which itself may have derived from the State Pension)

I suspect that, like Lootman, I probably look more at cash flow as well rather than income. Certainly I do not pay myself a regular monthly income. I just draw it as I need it

Dod

What matters from an IHT and regular gifts from income perspective is the annual income of the person making the gifts. Cash from disposals, however illogical, do not count as income. If the regular gifts from income do not affect the lifestyle of the person making the gifts they can be excluded from the estate.

I am well aware of the HMRC edict on this. My gifts pretty well fall within the limits anyway without my having to rely on the gifts from income exemption.

Dod

[hiriskpaul]

I suspect that, like Lootman, I probably look more at cash flow as well rather than income. Certainly I do not pay myself a regular monthly income. I just draw it as I need it

What matters from an IHT and regular gifts from income perspective is the annual income of the person making the gifts. Cash from disposals, however illogical, do not count as income. If the regular gifts from income do not affect the lifestyle of the person making the gifts they can be excluded from the estate.

Yes but the cash proceeds from sales can pay my bills, meaning that my "income" surplus to needs is greater. So doesn't it come down to the same thing?

Unfortunately not.

[Dod101]

I suspect that, like Lootman, I probably look more at cash flow as well rather than income. Certainly I do not pay myself a regular monthly income. I just draw it as I need it

What matters from an IHT and regular gifts from income perspective is the annual income of the person making the gifts. Cash from disposals, however illogical, do not count as income. If the regular gifts from income do not affect the lifestyle of the person making the gifts they can be excluded from the estate.

Yes but the cash proceeds from sales can pay my bills, meaning that my "income" surplus to needs is greater. So doesn't it come down to the same thing?

Unfortunately not.

Do you actually know this or are you simply quoting from the HMRC manuals?

Dod

[clunk]

Total return versus income. To me this reads as SIPP versus ISA. Unless someone states a tax wrapper I assume it's regarding a SIPP.

My own SIPP is primarily low cost index funds with no new money and literally zero cash. Any incidental dividends cover platform fees and the rest gets re-invested into cheap tracker OEICs.

My S&S ISA is where all new money goes as I intend to continue maxing the allowance for the coming years. I am 61 years old.

I'm one of those investors who looks at the ISA as a growing annuity where control over the capital is maintained. Dividend income being the primary focus, far less so that of overall capital growth and/or total return. I want to create a tax free income which I can ultimately live off.

I suspect many 'older' investors, if they haven't already, begin to consider tax-free dividend income as pension age approaches.

I've spent hours reading this forum after just joining, particularly with regard to high yield investing.

This being my first post, may I say 'hello'

[Itsallaguess]

My own SIPP is primarily low cost index funds with no new money and literally zero cash. Any incidental dividends cover platform fees and the rest gets re-invested into cheap tracker OEICs.

My S&S ISA is where all new money goes as I intend to continue maxing the allowance for the coming years. I am 61 years old.

I'm one of those investors who looks at the ISA as a growing annuity where control over the capital is maintained. Dividend income being the primary focus, far less so that of overall capital growth and/or total return. I want to create a tax free income which I can ultimately live off.

I suspect many 'older' investors, if they haven't already, begin to consider tax-free dividend income as pension age approaches.

Hi clunk,

Welcome to The Lemon Fool.

I think your multi-pronged approach is a very sensible one, with a SIPP automatically running on a long-term TR-basis whilst your ISA helps to provide you with a live 'income-investment' study whilst you're in a period where you're not yet needing to consume it, but where you'll obviously gain some much-needed confidence from seeing how it behaves over the years before you ultimately make the switch-over into using it for it's intended purpose.

I've been income-investing for many years now, during a long period where I've still been working, but I know myself well enough to understand that I wouldn't have been happy or confident to carry out what many might see as a TR-to-Income switch much closer to the period where that income-stream is required.

I always knew that I would need to see the structure and income-delivery working and building for quite a few years, re-investing non-required dividends back into the strategy during a period where they don't need to be consumed, but at the same time being able to provide long-term generated-dividend data for me in terms of how my own income-portfolio was performing even when I didn't 'need' it, so that when the day comes where I do flick that switch from dividend-reinvestment to dividend-consumption, I would have those years of confidence behind me to help sleep a little better at night...

The bulk of my income-portfolio is held in a broad number of geographically-diverse income-related IT's (https://tinyurl.com/2f9lns4e), and over the past few years as I approach a time where I might look to make some work-related decisions, I've tracked my rolling 12-month income to help get a sense of income-stability and long-term growth, which has helped me enormously in terms of provided fact-based evidence on which to help base my medium-term plans -




Source - my own income-tracking spreadsheet

Whilst I've removed the left-hand income-axis figures, I hope it's clear to see how useful it is to monitor these types of long-term income-trends, and I honestly can't see how I'd have had any personal confidence in making any proposed work-related plans, without having visibility of this type of medium-term legacy income-data from my own live portfolio, and with 93% of the above income being delivered from holdings that are held within ISA accounts, I completely agree that this is a very important aspect of the whole approach...

Cheers,

Itsallaguess

[Itsallaguess]

The bulk of my income-portfolio is held in a broad number of geographically-diverse income-related IT's (https://tinyurl.com/2f9lns4e)

Apologies, the link I meant to provide was to the following income-IT table, which is representative of the type of AIC data that I've used to purchase the bulk of my geographically-diverse income-IT holdings -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=36145

Quite a few of my holdings appear in both lists, so hopefully having visibility of the two links above might be of interest, and there's some instructions underneath the table in the second link above, explaining how the data can be generated at any time with live, up-to-date AIC information...

Cheers,

Itsallaguess

[Dod101]

The trouble with resurrecting those very long threads (like this one) is that the points I might like to make are likely to have already been made so I have nothing further to say as I risk repeating myself.

Dod

[dealtn]

The trouble with resurrecting those very long threads (like this one) is that the points I might like to make are likely to have already been made so I have nothing further to say as I risk repeating myself.

Dod

I don't see that as a risk, to be honest. Pertinent points can always be made again. After all many won't bother to return to the beginning and even realise a point has been made previously.

[scotview]

The bulk of my income-portfolio is held in a broad number of geographically-diverse income-related IT's (https://tinyurl.com/2f9lns4e), and over the past few years as I approach a time where I might look to make some work-related decisions, I've tracked my rolling 12-month income to help get a sense of income-stability and long-term growth, which has helped me enormously in terms of provided fact-based evidence on which to help base my medium-term plans -




Source - my own income-tracking spreadsheet

Cheers,

Itsallaguess

Good post, iaag. Does that chart include dividends being reinvested and would it get flatter once you start taking an income?
Hope that's a sensible question.

[Itsallaguess]

Does that chart include dividends being reinvested and would it get flatter once you start taking an income?

Thanks - the 12 month rolling-income chart includes both re-invested dividends and fresh capital from working wages injected at the start of most new tax-years, so there will be three underlying influences on it -

• Broad organic growth in underlying dividends

• Dividends generated from internally-held and re-invested dividends that are not yet required to be paid out whilst still working

• Dividends generated from freshly invested capital from working salary

I've not broken down the three independent elements, but having run the same processes for many years now, you do tend to get a good feel for how each of the three individual aspects above are each influencing the broad upward trend in overall yearly income, and I'm happy with how things might look once work-related plans might change at some point in the future, which is certainly likely to eventually affect the second the third aspects listed above.

A change in work-related circumstances is unlikely to remove 100% of the internally-generated dividends due to me hopefully not needing to remove all of my generated income, so ultimately in draw-down mode I expect to more heavily rely on the top entry in the above list, and perhaps 15% of the non-utilised second entry, where some level of unused income-safety-margin is expected to be able to be left re-invested inside the system to help maintain some level of underlying income growth for the next year.

Regarding the third 'fresh capital' influence, and given recent and future reductions in the non-sheltered dividend-allowance, I do expect to be carrying more cash than usual for a few years, and so in terms of my own medium-term plans, I think if I make any work/life balance changes once a required level of dividend-income is confidently being generated, I do expect to then be able to 'over-shoot' on a good few years worth of freshly-injected ISA capital, which I plan to take advantage of in my own long-term plans as then being an additional part of my 'safety-margin' calculation, which I hope will help quite a bit with any potential nervousness at that time...

Cheers,

Itsallaguess

[Gerry557]

It's not just older investors that have an income bias. I was deriving income in my 20's.

Partly to see how it worked and to see what could be achieved. It was always comforting knowing that there was some cash either in the account or due soon, just in case.

Then it became a cover for income if either of us was out of work or unable to work. The target then was retiring early. Additionally there are always humps that need overcoming. Up sizing the house plus alterations. Taking on a bigger mortgage is likely to be a bit of a struggle from most but having the extra income available should we need it always eased our minds.

Dividends were automatic. No need to calculate what to sell and how much. Some funds are priced tomorrow lunch time so you never know the amount you are likely to get. Much easier to know I have X to invest instead.

There is always a trade off with many decisions. ISA or sipp. Pay off mortgage or invest etc.

Sometimes the wrong decision is the right one depending on personal preferences

[Itsallaguess]

My point simply was that, as anyone can see, when new posts are added to a thread that is years old it can be very confusing.

Just two quick points on that -

This thread was only started in February of this year, and before clunk's self-introductory post, the last contribution on the thread was from March, so whilst I agree with your point when it's related to much older legacy-threads, I'm not sure it's quite as warranted in a thread that's still relatively much 'younger'.

More importantly though, and especially on a site that's now becoming bogged down and ruined from an investment perspective by entrenched, circular and laboriously repeated political arguments, we can see that since clunk's introductory contribution yesterday, it's now seen fresh and relevant income-investment discussions from four different posters, including clunk himself.

From that perspective alone, and with you being someone who's quite rightly lamented the lack of investment-based discussions on this site nowadays Dod, I think we should perhaps strive to be a little more encouraging when anyone looks to raise investment-based discussions, and that's especially relevant where such posters are completely new to a site that would absolutely benefit from some new faces and fresh insights in terms of their own experiences...

Cheers,

Itsallaguess

[scrumpyjack]

Total return versus income. To me this reads as SIPP versus ISA. Unless someone states a tax wrapper I assume it's regarding a SIPP.

...
This being my first post, may I say 'hello'

Hello!

On the issue of what counts as income for the purposes of having surplus income to give away avoiding IHT, income in SIPPs does not count unless drawn, income in ISAs does count, even if not withdrawn, and share sales obviously are capital and do not count. I am mindful of this issue as I make a large monthly standing order to my daughter, calculated to be within the 'out of income' exemption.

[monabri]

Thanks - the 12 month rolling-income chart includes both re-invested dividends and fresh capital from working wages injected at the start of most new tax-years, so there will be three underlying influences on it -

• Broad organic growth in underlying dividends

• Dividends generated from internally-held and re-invested dividends that are not yet required to be paid out whilst still working

• Dividends generated from freshly invested capital from working salary

I've not broken down the three independent elements, but having run the same processes for many years now, you do tend to get a good feel for how each of the three individual aspects above are each influencing the broad upward trend in overall yearly income, and I'm happy with how things might look once work-related plans might change at some point in the future, which is certainly likely to eventually affect the second the third aspects listed above.

[text removed by monabri]

Itsallaguess

(ignoring the centre part of the curve where I assume the drop in income is mainly due to Covid-19).

Just an observation: Are we seeing any compounding effect from re-invested dividends or from new money? If all dividends are reinvested along with new money, wouldn't the slope of the curve start to increase?

I'm just wondering if your change in strategy of moving from single HYP shares (with higher yield ?) into ITs (with lower yields?) is currently dampening the effect of dividend increases?

[tjh290633]

Moderator Message:
Gentlemen, can we please avoid local spats between you, It is unedifying and not needed.

Please stick to the subject of the topic.

TJH

[Gerry557]

Total return versus income. To me this reads as SIPP versus ISA. Unless someone states a tax wrapper I assume it's regarding a SIPP.

...
This being my first post, may I say 'hello'

Hello!

On the issue of what counts as income for the purposes of having surplus income to give away avoiding IHT, income in SIPPs does not count unless drawn, income in ISAs does count, even if not withdrawn, and share sales obviously are capital and do not count. I am mindful of this issue as I make a large monthly standing order to my daughter, calculated to be within the 'out of income' exemption.

"income in ISAs does count," I didnt realise that. I might have to dig deeper on that subject. I thought about moving some SIPP to ISA to use up some tax free allowance.

It might be back to a brown paper bag of cash and "meetings" in the park whilst wearing dark glasses

[scrumpyjack]

Form IHT403 specifically lists ISAs as being included in 'income' for this purpose

[Itsallaguess]

The 12 month rolling-income chart includes both re-invested dividends and fresh capital from working wages injected at the start of most new tax-years, so there will be three underlying influences on it -

• Broad organic growth in underlying dividends

• Dividends generated from internally-held and re-invested dividends that are not yet required to be paid out whilst still working

• Dividends generated from freshly invested capital from working salary

I've not broken down the three independent elements, but having run the same processes for many years now, you do tend to get a good feel for how each of the three individual aspects above are each influencing the broad upward trend in overall yearly income, and I'm happy with how things might look once work-related plans might change at some point in the future, which is certainly likely to eventually affect the second the third aspects listed above.

Just an observation: Are we seeing any compounding effect from re-invested dividends or from new money?

If all dividends are reinvested along with new money, wouldn't the slope of the curve start to increase?

I'm just wondering if your change in strategy of moving from single HYP shares (with higher yield ?) into ITs (with lower yields?) is currently dampening the effect of dividend increases?

Well-spotted...

I didn't want to complicate my earlier post with more granular details that are currently conspiring to dampen what might rightly be an expectation to see a slightly more exponential chart, but briefly they would include -

• As you've highlighted, the back-end of my multi-year rotation from more volatile (income and capital) higher-yielding single-share holdings into relatively much calmer income-oriented Investment Trusts, often of a more global nature but with comparatively lower yields

• The back-end of a multi-year rotation out of a legacy works-related share-scheme which has limited my ability to inject additional accumulated capital from wages into my protected share-accounts

• The back-end of a multi-year tax-planning and minimisation process that's eaten further into any freshly-available ISA-allowances, and also added to the chart-based dampening affects due to the continued build-up of an amount of uninvestable capital from wages.

So whilst I did mention earlier that I currently find myself with a much larger pot of uninvested capital, I hope the above details helps to explain a little about why that is, but I should also add that part of my longer-term income-strategy which deals with market and personal-confidence, I do tend to use my uninvested cash pot as a personal weathervane, allowing the upper levels of it to float around quite a bit depending on how confident I feel about the broader markets, and the current period where I've got an even larger than normal univested pot is fortuitously occurring during a period where I'm happy actually fairly happy to carry it, which, from a 'sleep at night' perspective, then allows me to carry on quite calmly with the rest of my invested funds.

It's a personal-coping mechanism that's worked very well for me over the years, and especially so as my invested capital has risen in value over a few decades, and it allows me to broadly continue in a 'fully invested' way with my already-invested portfolio, and then never gives me a moments thought about having to sell-up due to any sort of market-panic, even through some fairly interesting historical periods...

And all of the above then feeds into what I mentioned earlier as a very likely 'over-shoot', if and when I do finish work, where I'd probably be able to continue with at least some level of fresh ISA investment for a useful and worthwhile period, even though work-related wages might end, which as highlighted, is hoped to form an additional safety-margin for any 'can I do this?' mental-gymnastics nearer the time.

For me personally though, it's satisfying that even with the above three current headwinds, I'm still seeing a very satisfactory long-term growth trend in my rolling 12-month income, through which some much-needed long-term planning can be made using long-term real-world income-data...

Cheers,

Itsallaguess

[scrumpyjack]

It is reassuring to have a comfortably rising income stream from dividends, such that one can ignore the odd bout of market panic. But I suspect an incoming Labour government may take much more of it in tax and make one reconsider how sensible it is to pay too much attention to dividends. Deja vu all over again as I recall the 98% tax on dividends in the seventies