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Unitisation & Foreign 'Net' Dividends

A helpful place to also put any annual reports etc, of your own portfolios
ADrunkenMarcus
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Unitisation & Foreign 'Net' Dividends

#399751

Postby ADrunkenMarcus » March 28th, 2021, 12:42 pm

I have a SIPP ('2060') which is unitised and also a dividend growth portfolio which is treated as one portfolio even though some is in an ISA and some is not ('unwrapped').

I hold some foreign shares in the ISA: MasterCard (15% dividend tax taken off) and Kone (30%, now 35% dividend tax taken off). The dividends are paid to me net of this, already - what do the USA or Finland care about ISAs? ;)

For UK shares in the ISA, the dividends are paid gross.

If I had UK dividends outside the ISA above the annual allowance then they would be paid gross at the time of payment but then I'd have to report them on my tax return. So my net dividends would be lower but I'd only know the full details later.

For unitisation, to date I've always recorded the net dividends received in all cases (UK dividends outside the ISA and above the limit does not apply), but I have been pondering the issue. How does this all work when comparing to indexes? It surely creates a drag as the indexes are presumably gross returns.

I guess what this all comes down to is that I will keep reporting my own, net (actual) dividends while accepting that this is a more conservative way of doing things. (My dividends from foreign shares such as MasterCard or Kone will be below the returns they contribute to an index.) It will also create some minor drag, both in terms of the level of dividend and growth of the dividend per income unit; and the value of the accumulation units, relative to the index.

Anyone else got any thoughts about this?

Best wishes

Mark.

Hariseldon58
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Re: Unitisation & Foreign 'Net' Dividends

#399854

Postby Hariseldon58 » March 28th, 2021, 5:34 pm

It gets complicated !

With respect to the indexes, the US indexes are treated as if dividends have with holding taxes of 30% applied, in practice for us in the UK the with holding tax is 15%, hence the low charging indexes tend to slightly outperform the index.

ADrunkenMarcus
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Re: Unitisation & Foreign 'Net' Dividends

#399994

Postby ADrunkenMarcus » March 29th, 2021, 9:51 am

Hariseldon58 wrote:It gets complicated !

With respect to the indexes, the US indexes are treated as if dividends have with holding taxes of 30% applied, in practice for us in the UK the with holding tax is 15%, hence the low charging indexes tend to slightly outperform the index.


Thanks Hariseldon58.

You're certainly right there about complications! I use FTSE 100, FTSE 250, FTSE All Share and FTSE All World indexes (TR) as my benchmarks, as well as CPI.

In the case of a world index, it may then be that they treat dividends on a net basis as with the US ones, so my Finnish shares' 35% dividend tax will be accounted for in the index. In that case, it's no problem as the index will treat the Finnish dividends on a net basis - the same as I do. Or maybe they don't. Who knows!

In all fairness, if you take MasterCard then it has a c. 0.5% dividend yield. Taking dividend growth + dividend yield as a very basic proxy for its annual returns, you might get 15% dividend growth and 0.5% dividend yield to take you to a 15.5% total return for a year. Shaving 15% of the dividends would take the dividend yield to 0.425% and then would turn 15.5% into 15.425% so it's not a huge difference! Although MasterCard is a 10% chunk of my portfolio...

Best wishes


Mark.

tjh290633
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Re: Unitisation & Foreign 'Net' Dividends

#400164

Postby tjh290633 » March 29th, 2021, 8:04 pm

ADrunkenMarcus wrote:In all fairness, if you take MasterCard then it has a c. 0.5% dividend yield. Taking dividend growth + dividend yield as a very basic proxy for its annual returns, you might get 15% dividend growth and 0.5% dividend yield to take you to a 15.5% total return for a year. Shaving 15% of the dividends would take the dividend yield to 0.425% and then would turn 15.5% into 15.425% so it's not a huge difference! Although MasterCard is a 10% chunk of my portfolio...

How can you work out an annual return without taking capital growth or shrinkage into account? The only factors which affect that are the change in capital value and the dividends paid out (or reinvested). Growth in dividend does not feature.

TJH

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Re: Unitisation & Foreign 'Net' Dividends

#400174

Postby ADrunkenMarcus » March 29th, 2021, 8:29 pm

tjh290633 wrote:
ADrunkenMarcus wrote:In all fairness, if you take MasterCard then it has a c. 0.5% dividend yield. Taking dividend growth + dividend yield as a very basic proxy for its annual returns, you might get 15% dividend growth and 0.5% dividend yield to take you to a 15.5% total return for a year. Shaving 15% of the dividends would take the dividend yield to 0.425% and then would turn 15.5% into 15.425% so it's not a huge difference! Although MasterCard is a 10% chunk of my portfolio...

How can you work out an annual return without taking capital growth or shrinkage into account? The only factors which affect that are the change in capital value and the dividends paid out (or reinvested). Growth in dividend does not feature.

TJH


This was simply a proxy. As a very general example, if you have a share yielding 3% which grows its dividend at 3% a year and trades at roughly the same valuation and maintains the same payout ratio...then an annual return of about 6% is what you can expect. Basically, what I'm saying is that the dividend tax from my MasterCard dividend will make barely any difference to the approximate estimated annual return in a given year: 15.425 vs. 15.5% (e.g.)

To monitor the actual total return I record the share price change (increase or decrease) and the dividend paid.

Best wishes


Mark.

tjh290633
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Re: Unitisation & Foreign 'Net' Dividends

#400304

Postby tjh290633 » March 30th, 2021, 12:06 pm

ADrunkenMarcus wrote:This was simply a proxy. As a very general example, if you have a share yielding 3% which grows its dividend at 3% a year and trades at roughly the same valuation and maintains the same payout ratio...then an annual return of about 6% is what you can expect. Basically, what I'm saying is that the dividend tax from my MasterCard dividend will make barely any difference to the approximate estimated annual return in a given year: 15.425 vs. 15.5% (e.g.)

I would like to see how you arrive at that. I make that an annual return of 3.09%.

TJH

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Re: Unitisation & Foreign 'Net' Dividends

#400313

Postby ADrunkenMarcus » March 30th, 2021, 12:29 pm

tjh290633 wrote:
ADrunkenMarcus wrote:This was simply a proxy. As a very general example, if you have a share yielding 3% which grows its dividend at 3% a year and trades at roughly the same valuation and maintains the same payout ratio...then an annual return of about 6% is what you can expect. Basically, what I'm saying is that the dividend tax from my MasterCard dividend will make barely any difference to the approximate estimated annual return in a given year: 15.425 vs. 15.5% (e.g.)

I would like to see how you arrive at that. I make that an annual return of 3.09%.

TJH


I don't know how else to explain it. Your 3.09% makes no sense to me, either!

Best wishes


Mark.

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Re: Unitisation & Foreign 'Net' Dividends

#400408

Postby tjh290633 » March 30th, 2021, 6:53 pm

ADrunkenMarcus wrote:
tjh290633 wrote:
ADrunkenMarcus wrote:This was simply a proxy. As a very general example, if you have a share yielding 3% which grows its dividend at 3% a year and trades at roughly the same valuation and maintains the same payout ratio...then an annual return of about 6% is what you can expect. Basically, what I'm saying is that the dividend tax from my MasterCard dividend will make barely any difference to the approximate estimated annual return in a given year: 15.425 vs. 15.5% (e.g.)

I would like to see how you arrive at that. I make that an annual return of 3.09%.

TJH


I don't know how else to explain it. Your 3.09% makes no sense to me, either!

Best wishes


Mark.

I have just done a calculation. Your figure of ~6% relies on the share price increasing by 3% p.a. Over two years that gives an XIRR of 6.32%, Without the share price increase the XIRR is 3.20%.

Date       Event      Cash flow   Cash Flow 2
01/01/20 Bought -100 -100
01/06/20 Dividend 1.5 1.5
01/12/20 Dividend 1.5 1.5
01/06/21 Dividend 1.545 1.545
01/12/21 Dividend 1.545 1.545
01/12/21 Sold 106.09 100

. XIRR 6.32% 3.20%

TJH

ADrunkenMarcus
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Re: Unitisation & Foreign 'Net' Dividends

#400415

Postby ADrunkenMarcus » March 30th, 2021, 7:10 pm

tjh290633 wrote:I have just done a calculation. Your figure of ~6% relies on the share price increasing by 3% p.a.
TJH


Exactly so.

Best wishes

Mark.

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Re: Unitisation & Foreign 'Net' Dividends

#400420

Postby dealtn » March 30th, 2021, 7:23 pm

tjh290633 wrote:I have just done a calculation. Your figure of ~6% relies on the share price increasing by 3% p.a.


He said it would trade at (roughly) the same valuation.

So if that valuation is yield based or P/E based and nothing else changes, then its a (rough) 6% annual return.

A share at 100p that earns 3p, and pays a dividend of 3p, has a P/E of 33.3 and a dividend yield of 3%.

If the earnings, and dividend go up by 3%, to 3.09p then keeping the P/E or dividend yield the same, the value of the share has risen from 100p to 103p.

The holders return is 3p capital gain plus the dividend return.

ADrunkenMarcus
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Re: Unitisation & Foreign 'Net' Dividends

#400686

Postby ADrunkenMarcus » March 31st, 2021, 9:15 pm

You put it very well, dealtn.

Many thanks,

Mark.


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