AyG
Crazy Mango Extraordinaire
Posts: 5,871 
Likes: 4,555
|
Post by AyG on Mar 20, 2019 6:49:26 GMT 7
^^^ And, of course, there are 21 ITs that have increased their dividend every year for the last 20, and of those, 4 have done so for 50+ years. www.theaic.co.uk/aic/news/press-releases/aic-dividend-heroesThere are only 20 individual companies (excluding ITs) that have increased their dividend annually for 20+ years. PZ Cussons plc Cranswick plc Diageo plc Spectris Group plc Vodafone Group plc Spirax Engineering plc Bunzl plc Derwent London James Fisher and Sons plc Halma plc RPC Group plc J. Smart & Co. plc Dewhurst plc Highcroft Investments plc Mears Group plc Young & Co's Brewery plc Bloomsbury Publishing plc Imperial Brands Group plc Primary Health Properties plc Ultra Electronics Holdings plc Data from dividendchampions.uk/ |
|
|
|
Post by Fletchsmile on Mar 20, 2019 17:10:30 GMT 7
It's an impressive feat to consistently increase the dividend. Useful too for someone relying on consistent dividends. One thing that struck me though is, does this really lead to the most efficient total return? IT's have rules around segregating their income and capital accounts. So when a revenue reserve is maintained, where do they actually place the XS reserve funds? If it's held in cash, then these days its earning next to nothing. Wouldn't it be better to just pay it out and let the investor decide. As rgs says that could be re-invested (or not). It many cases it might also help close discounts vs NAV if fully paid out and not retained, and was part of a DRIP style programme
If not held in cash and held in other liquid/non-liquid investments I guess that brings some issues as well. Will those investments generate the same returns as the capital account which is say invested all in equities.
If 100% was paid out rather than 85% and 15% retained in cash, someone could invest that extra 15% elsewhere which wouldn't be difficult to find a return above cash/ money market rates
|
|
|
|
Post by rgs2001uk on Mar 21, 2019 21:08:43 GMT 7
^^^ And, of course, there are 21 ITs that have increased their dividend every year for the last 20, and of those, 4 have done so for 50+ years. www.theaic.co.uk/aic/news/press-releases/aic-dividend-heroesThere are only 20 individual companies (excluding ITs) that have increased their dividend annually for 20+ years. PZ Cussons plc Cranswick plc Diageo plc Spectris Group plc Vodafone Group plc Spirax Engineering plc Bunzl plc Derwent London James Fisher and Sons plc Halma plc RPC Group plc J. Smart & Co. plc Dewhurst plc Highcroft Investments plc Mears Group plc Young & Co's Brewery plc Bloomsbury Publishing plc Imperial Brands Group plc Primary Health Properties plc Ultra Electronics Holdings plc Data from dividendchampions.uk/Great stuff, I aint as daft as I thought I was, Bankers Investment Trust, Alliance Trust, Foreign & Colonial Investment Trust, Brunner Investment Trust, Witan Investment Trust, Scottish Mortgage Investment Trust, all held by me. |
|
|
|
Post by rgs2001uk on Mar 21, 2019 21:13:00 GMT 7
It's an impressive feat to consistently increase the dividend. Useful too for someone relying on consistent dividends. One thing that struck me though is, does this really lead to the most efficient total return? IT's have rules around segregating their income and capital accounts. So when a revenue reserve is maintained, where do they actually place the XS reserve funds? If it's held in cash, then these days its earning next to nothing. Wouldn't it be better to just pay it out and let the investor decide. As rgs says that could be re-invested (or not). It many cases it might also help close discounts vs NAV if fully paid out and not retained, and was part of a DRIP style programme
If not held in cash and held in other liquid/non-liquid investments I guess that brings some issues as well. Will those investments generate the same returns as the capital account which is say invested all in equities.
If 100% was paid out rather than 85% and 15% retained in cash, someone could invest that extra 15% elsewhere which wouldn't be difficult to find a return above cash/ money market rates
Its can be paid out, depends on which box you tick, i ticked reinvest, others tick have the divi sent to my bank account. That leads to the question, if you aint prepared to reinvest the divi into the IT, why invest in it in the first place? If I thought there was better offerings to be had elsewhere, just sell the lot and reinvest, I have done this, one example was offloading Caledonia and reinvesting it into Brunner and Bankers. |
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Mar 22, 2019 6:07:28 GMT 7
If 100% was paid out rather than 85% and 15% retained in cash
Its can be paid out, depends on which box you tick, i ticked reinvest, others tick have the divi sent to my bank account. I think you may be misunderstanding. Investment trusts can retain some of their income internally to hold over for a "rainy day". This allows them to smooth the dividend paid. It's this cash to which Fletch was referring, and which may be considered inefficient. |
|
|
|
Post by Fletchsmile on Mar 22, 2019 10:47:52 GMT 7
Its can be paid out, depends on which box you tick, i ticked reinvest, others tick have the divi sent to my bank account. I think you may be misunderstanding. Investment trusts can retain some of their income internally to hold over for a "rainy day". This allows them to smooth the dividend paid. It's this cash to which Fletch was referring, and which may be considered inefficient. Yes, that's exactly the point. If they pay out 100% you can choose what to do with it, re-invest, take the divi etc
If they retain 15% and only pay out 85% that then begs the question of what they do with the 15% they retain, i.e hold cash, hold liquid instruments, re-invest in shares in exactly the same proportion as the existing holdings (pretty sure most don't do this last one)
rgs
If they pay out 100% and you choose to reinvest the div, that allows you to retain your original investment for what you wanted - likely just total compounded return. If they pay out only 85% and retain 15% to smooth future dividends, then that 15% retained may not be invested how you would have liked. It is there to smooth dividends. But if you are re-investing dividends then you likely don't necessarily want dividends in the first place - let alone someone adding costs off smoothing them for you - so why bother smoothing them?
In order to be able to smooth in bad years, that means the revenue reserve is very likely not held in the same way as the rest of the fund, and likely to be held in more liquid, less capital risk, shorter term assets/investments etc etc . It is this element that could be inefficient, as likely lower long run return too in exchange for the lower risk.
My preference is for them to either pay out nothing or pay out 100%. That way I can make my choices in what to invest/ whether to invest accordingly. If they keep 15% to smooth future returns that likely means lower risk / lower reward assets - not necessarily what I want. If I invest in Asia equities I want Asia equities exposure. Not someone keeping profits back and investing them in I don't know what. I prefer to smooth my overall portfolio returns in the way I want, not have individual funds doing it and not knowing exactly what they are doing. Of course many people will differ, as different people have different objectives. Particularly income seekers who just want a consistent and relatively predicatble dividend. Whenever you get consistency in returns or guarantees or similar, it always comes at a cost - often an opportunity cost of what you could have had.
In your case as you re-invest divs, I would suggest it would have been better for you in an identical fund which didn't pay out divs in the first place. That's why unit trusts often have at least 2 classes of funds: distribution or accummulation units. It lets you make the choice. If you choose dividends you can then choose to "smooth your own returns" by holding your own reserve in assets that you know and that you choose. For some people though they don't want to bother smoothing their returns themselves and would be better with an investment trust. There are parallels with with profits style investments. Although I would take an IT over a with profit investment policy any day.
Some funds have ridiculous amounts like 20 years worth of dividend payments held in their revenue reserve. That for me is highly questionable.
|
|
|
|
Post by Fletchsmile on Mar 22, 2019 11:16:25 GMT 7
It's undoubtedly an advantage for some income seeking investors that want consistent dividend returns if ITs are allowed to retain 15%. It's not necessarily without disadvantage though: - Often it can lack transparency as to what exactly they do with it - What about conflict of interest? A cynic might also say they retain that 15% so the total funds under management remains higher and hence their own fees will be higher becaused of a higher NAV due to retained revenue - Depending on what it is invested in - likely not to be 100% cash and likely not mirroring the main fund - this could lead to pricing disadvantages if needed to be sold at the wrong time, or if achieving less return than the rest of the fund - Large shareholders can act in their own interests rather than yours
etc etc
It's another area ITs are more complex than investors often realise. Of course the AIC and ITs themselves will tout only the advantages of revenue reserves. You need to look elsewhere for disadvantages Here's a few articles I did a quick google on to give a flavour of the wider issues I mentioned as well as others.
Might be a bit out of date, but the questions remains valid, eg Tetragon 1bn out of 2.5bn is revenue reserve. That's 40% of the funds is retained revenue!!! www.trustnet.com/news/832964/the-investment-trusts-with-the-best-dividend-cover-revealedOlder article, but interesting questions. Who TF? needs 67 years of revenue reserves. Why bother distributing at all? Who's making the call and why as to what is appropriate to retain?
Not keen on the idea of these large/ controlling stakeholders managing their own tax planning at my potential expense
www.telegraph.co.uk/finance/personalfinance/investing/funds/11138130/Income-funds-with-reserves-to-pay-dividends-for-up-to-67-years.html |
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Mar 22, 2019 12:45:02 GMT 7
Tetragon is a very strange beast. It looks to me more like a private hedge fund which just happens to be listed on the LSE.
The dividend coverage in 2017 was 2.66 according to the LSE. Not sure if the 16.2 figure for 2018is correct. If so, whatever the reserves were invested in has performed phenomenally.
|
|
|
|
Post by Fletchsmile on Mar 22, 2019 14:26:24 GMT 7
Tetragon is a very strange beast. It looks to me more like a private hedge fund which just happens to be listed on the LSE. The dividend coverage in 2017 was 2.66 according to the LSE. Not sure if the 16.2 figure for 2018is correct. If so, whatever the reserves were invested in has performed phenomenally.
I think people in these articles sometimes use the same terms in different ways
1st Some use dividend cover to mean simply revenue or income / dividends. This is similar to how it is calculated for normal companies, and similar to what your average accountant might do.
2nd Others take into account the revenue reserves when talking about dividend cover, which is somewhat specific to ITs
So
With income of 100 and dividends of 85 that would be dividend cover of 1.18 -ish on the first measure, i.e doing like normal companies.
But if talking revenue reserves accumulated over say 60 years or more, it's easy to see how tucking away 15% of divs for 60 years would give a much higher number than just measuring 1 years revenue / div
It's definitely the latter when people talk of Hansa etc being 67 years cover, and anyone else with over 10.
--------------------------------------------------------------
For Tetragon, given it has revenue reserves of ball park 1 bn out of 2bn+ value, I'd say if counting reserves as a multiple of 1 year's dividend it will be well into double digits, so 16.2 looks more reasonable.
The LSE measure is the one that looks odd.
Without looking further:
Firstly LSE likely does not take into account the revenue reserves, i.e uses first method.
Still looks a a bit odd, though at 2.X. , and usually on that method they come up as 1.X and below for ITs.
My guess would be they had a very good year in 2017 where profits were maybe ball park double what they were in the previous year, and they had paid out say 85% previously.
So along the lines of 2017 profits 200, double 2016 profits of 100, of which 85 was paid out. 200/85 = 2.35
So Quick reasonableness check on very crude ball parks:
on 2bn they made say 10% = 200m Previous year made say 5% = 100m Last div payout 85 mn
LSE (1st) measure 200/85 = 2.35; other (2nd) measure 1000/85 = 11.76.
These two numbers seem in very crude ball parks as to my guess - i.e describing apples and oranges (1st and 2nd methods)
|
|
|
|
Post by Fletchsmile on Mar 22, 2019 14:39:03 GMT 7
Here's the definitions. Probably clarifies a bit better what I think the difference may be I've come across this a few times in the past being an accountant myself (so more used to 1st definition) but also investing in Investment Trusts for decades  1st usual definition en.wikipedia.org/wiki/Dividend_cover2nd from AIC glossary, is specific to ITs and www.theaic.co.uk/aic/glossary/d?keys= |
|
|
|
Post by Fletchsmile on Mar 25, 2019 13:27:08 GMT 7
I started having a look at this list in more detail - being someone who looks for investment income to fund my retirement in Thailand, and being someone who holds investment trusts. Additionally these days I generally prefer not picking individual stocks and prefer collective investment vehicles like ITs and unit trusts/mutual funds/OEICs.
So the list of 21 ITs appeals more than a similar length list of 20 individual companies, and I'd be rather go for the ITs list. The first thing that struck me was that at first glance several of the ITs on the list that I'd prefer are not really suitable for someone looking for dividend income, as yields would likely too low. i.e they are best used when looking for total return not for generating dividend income. The fact that they are increasing dividends consistently is more of an accounting quirk of the nature of the regulations for ITs than anything meaningful for retirement income or investment income generally. eg I like and hold SMT but with a dividend yield of 0.7% per the list (currently closer to 0.6%) I'm not holding it for its dividend potential, but total return. The dividend income is so low that it's pretty meaningless it has been increased very slightly for 35 years. There's no way I could live off 0.7% a year without taking from capital. So it's total return that counts. It's also been towards the top of global funds in recent years. Over 5 years it ranks 2nd only to Lindesll Train IT out of 30 IT Global IT Global Equity Income and IT Global High Income Trusts, with a return of +145% Lindsell Train IT is something of an oddity and trades at a massive premium as well as investing in Lindsell Train itself, so not really an apples to apples comparison. So it's fair to say out of all the IT globals it's first over 5 years out of the normal global ITs. It's also not far behind the top 3 global unit trusts over 5 years: MS Global, LT Global, and Fundsmith which are all in the +150%s eg I also hold WTAN. With a dividend yield of 2.0% per the list (currently closer to 2.3%). For income it is better than SMT, and provides some income/ a contribution to what I need for income. Again I don't really hold it for income purposes though. It makes a contribution, but really I hold it as a solid investment in one of the largest ITs, which helps diversify globally. Its performance among IT global (+global equity +global high income) is very mediocre. It ranks 14 out of 30 over 5 years of +70% Not something to get rich quick with. Nor will the income alone keep you going. While the fact it has consistently increased income is a bit more meaningflu than SMT, it doesn't really mean that much.
At +70% it ranks behind trackers like L&G Global 100 Trust +79%, and there are over 100 global unit trusts with better 5 year performance than WTAN
1. Firstly Global and Global Income Funds
All in all, 10 ITs or about half the list are global funds. 9 are in the global sector and 1 in the global equity income fund sectors. If income was my key objective I probably wouldn't pick any of the 9 global funds as their yields are too low. All 9 yield 2.4% or less and about half are under 2%. Their average yield is just under 1.8%. So that they have been consistent in raising dividends doesn't mean much. Anyone picking these funds needs to be pretty well off to live off the income alone, and very unlikely to be able to do it in Thailand if you throw in exchange rates. That's not to say they aren't worth investing in. I think some of them are, and hold some of them. Just that the reasons for holding probably won't be for income, and are more likely to be for other reasons such as diversifying, being part of a wider portfolio, total return etc. The only global fund out of the 10 I would hold for its dividend income (+ capital growth) and where it's therefore useful to have that consistency is Scottish American SCAM. Per the list it yields 3% and has consistently increased for 38 years. It's the only one in the IT Global Income sector
Global equity funds tend to yield less than UK equity income funds. So while 3% is towards the lower end of what I look for if choosing an income fund for dividend income, it's acceptable It ranks 10th out of 30 over 5 years +88% Incidentally although the only global equity IT in the list, it beats all the UT global equity competitors, with the highest UT returning 80% over 5 years. So it's well considering if your primary goal is consistent global dividend income Worth remembring though that of the global sectors, it comes only 10th out of 30. So those dividends and consistency do come at a price when looking at overall return. So summarising.
- The top 3 global funds are unit trusts over 5 years, with the best IT being SMT coming in at 4th. (Ignoring the unusual LT Investment Trust with its 65% premium and large investment in its own fund manager) - Global funds generally have done better than global income funds. So an invetsor chasing that income (and consistency of dividends) did so at the cost of overall return that could have been achieved if that was the objective.
While SCAM is the best performing global income fund among both UTs and ITs over 5 years, it is only 10th out of 30 of all global ITs.
There were 9 ITs and 27 unit trusts with a better total return. (33 unit trusts if looking at NAV returns and ignoring the narrowing in SCAM's discount over 5 years) ---------------- Global ITs: IT Global, IT Global Income and IT Global High Income per Trustnet = 30 funds www.trustnet.com/fund/price-performance/t/investment-trusts?tab=fundOverview&IsTrustnetITSpecialistVct=false&pageSize=50&sortby=P60m&sortorder=desc§or=T%253AGGI%252CT%253AGHI%252CT%253AIGGlobal Unit Trusts: IA global and IA per Trustnet = 361 funds www.trustnet.com/fund/price-performance/o/ia-unit-trusts?tab=fundOverview§or=O%253AGEI%252CO%253AGLBLGRTH&pageSize=25&sortby=P60m&sortorder=desc |
|
|
|
Post by Fletchsmile on Mar 25, 2019 13:35:33 GMT 7
Northern Investment Company - the only Private Equity IT in the list was in the process of being wound up. So I guess that puts an end to consistency of dividends  |
|
|
|
Post by Fletchsmile on Mar 25, 2019 13:44:26 GMT 7
Interesting to note that out of the 20 remainers in the list:
Half were UK Equity Income
Half were Global Equity. With 9 out of 10 not being Global Income funds, i.e not really income funds
So mainly this list works for UK Equity Income.
Interesting that all the other geographies such as EU, Asia, EM etc are not represented
Interesting also that there are no fixed income funds in the list. Probably due to how bond yields have fallen in the last decade or so. Perhaps also due to there not being many fixed income ITs.
I guess a UK pensioner focused on UK Equity dividend income could use the list to build the core of an income yielding portfolio, and it could go quite some way to funding their retirement. They probably still needs to supplement with a decent fixed income unit trust fund/ ETF or two + and global/ other geographies for a more efficient portfolio.
For someone retired in Thailand and looking for dividend income, I guess it offers a few ideas for holdings, but needs a lot more adding to it, to avoid being too UK centric. Would have been nice to see some EU, Asia, Em income funds in there.
|
|
|
|
Post by Fletchsmile on Mar 25, 2019 14:38:28 GMT 7
2. UK Equity Income FundsHalf/ 10 of the funds were UK Equity Income Funds. There are 24 UK Equity Income IT s listed in total. www.trustnet.com/fund/price-performance/t/investment-trusts?tab=fundOverview&IsTrustnetITSpecialistVct=null&pageSize=25&sortby=P60m&sortorder=desc§or=T%253AUGIThe highest yielder on the list is British & American, which is a bit of an oddity. A massive double digit yield of over 14%, but that comes with a cost on total return/capital side. It's 5 year return shows as negative, and it sits firmly bottom of the list 24/24 for total return. Its share price fell -4.5% over 5 years. More worrying was its NAV fell -36% over 5 years I recall looking at another article where it does have a positive 10 year return, with a high div yield maintained, although its share price was down slightly All in all probably best ignored as an oddity for many people Below is their rankings out of 24 over 5 years for total returns British & American 24 City of London Investment Trust 6 F&C Capital & Income 3 Invesco Income Growth 19 JPMorgan Claverhouse Investment Trust 4 Merchants Trust 13 Murray Income 15 Schroder Income Growth 9 Temple Bar 11 Value & Income 20 When looking at total return, they don't really scream out as having a particular advantage within the equity income sector in general. i.e those that didn't make the heroes list F&C Capital and Income (now BMO Capital and Income) is the best performer and comes in 3rd out of 24 equity income funds JPM Claverhouse ( JCH) 4th and City of London 6th also come out quite well over 5 years. JCH is the only one I actually hold from all these City of London is one of those with a significant family influence, so need to bear in mind you may well be just piggy backing of what the family/ large shareholders want rather than what might be in your interest in a more transparent fund with less conflict of interest. F&C/BMO Capital and Income looks the main one aside from JCH that would interest me Worth noting Top over 5 years in the UK Equity Income sector is my favourite FGT. Though to me I don't particularly regard it as Equity Income. I hold it for total return and as a bonus it gives some income, rather than holding it for income. FGT yields only about 2%. As there focus is not income, no surprise it's not on the dividend hero list. All the other UK Equity Income Funds yield over 3%, so it's a bit of an oddity for the sector. Not quite sure why FGT is included in the UK Equity Income sector to be honest. It seems more suited to UK All companies sector like the very similar Lindsell Train UK unit trust. Performance of both also tends to be similar If FGT is excluded, the best Equity Income UTs probably slightly edge the best Equity Income ITs over 5 years, though not much in it. There's a bigger choice of UTs, so picking average funds or throwing darts while the best UTs might do better, the worst UT s probably generally do worse over 5 years.
|
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Mar 25, 2019 15:04:07 GMT 7
Something I've never really understood is the obsession with income Unit Trusts and Investment Trusts. Surely for most investors there's little difference between capital gains (which can be cashed in) and income.
By obsessing with income one is limiting oneself to a rather small part of the market.
(Of course, as an expat, the difference between income and capital gains from investments is precisely zero since there's no tax to pay in either case.)
|
|
