Income Portfolio's

username12345678

coyrls wrote: »

Consistent yield wouldn’t provide a consistent income; if yield is consistent and your diversified pf of ITs drop in price by 50%, your income will drop by 50%.

I may be misunderstanding your post but i'm not sure that's how it works.

My yield is predicated on my purchase price, if the price drops it doesn't mean my personal yield drops in tandem. Assuming no change to the underlying dividend yields from the IT's investments then my yield should remain steady.

Of course, someone who buys the same IT after a price drop will be receiving a higher yield than I will.

Thrugelmir

username12345678 wrote: »

My question would be 'What happens to dividends during a bear market?'.

If dividend payouts have historically been maintained during market downturns (I don't know if this is the case) then providing the yield from your portfolio meets your income requirements then how is this not a less volatile method than using total return?

So for arguments sake a diversified pf of IT's which have a history of raising payouts that match inflation and meet your income needs would be a 'fire and forget' solution would it not?

An example.

HSBC has paid the same dividend for the past years. Currently yields over 6%.

The dividend has increased over the past 3 years due to the fact that it pays dividends in US$ although listed on the LSE.

The increase that shareholders has received is due to the depreciating pound. exchange rate. There's no element of inflation linking.

Falling exchange rates are masking the fact that many companies aren't actually increasing distributions. Hence the concern that investors are chasing yield. Without looking at the actual performance of the companies that they are investing in.

In the past 10 years or so the US$ exchange rate has fallen 51%. This masks a multitude of sins. Shell , BP , Vodafone are other companies who do not declare dividends in GBP - £.

username12345678

Thrugelmir wrote: »

An example.

HSBC has paid the same dividend for the past years. Currently yields over 6%.

The dividend has increased over the past 3 years due to the fact that it pays dividends in US$ although listed on the LSE.

The increase that shareholders has received is due to the depreciating pound. exchange rate. There's no element of inflation linking.

Falling exchange rates are masking the fact that many companies aren't actually increasing distributions. Hence the concern that investors are chasing yield. Without looking at the actual performance of the companies that they are investing in.

In the past 10 years or so the US$ exchange rate has fallen 51%. This masks a multitude of sins. Shell , BP , Vodafone are other companies who do not declare dividends in GBP - £.

I see your point specifically regarding currency swings over the last few years.

However, CTY for example, have increased their dividend for the last 50.

Audaxer

username12345678 wrote: »

I may be misunderstanding your post but i'm not sure that's how it works.

My yield is predicated on my purchase price, if the price drops it doesn't mean my personal yield drops in tandem. Assuming no change to the underlying dividend yields from the IT's investments then my yield should remain steady.

Of course, someone who buys the same IT after a price drop will be receiving a higher yield than I will.

I agree. Take for example City of London IT that has paid out growing dividends for over 50 years. Due to the current correction, the price has fallen recently and the current yield is up to 4.55%. So if you invested £10k in it tomorrow you would likely receive £455 in dividends annually, with that amount growing each year to hopefully keep up with inflation. So it doesn't really matter what the yield is next month or next year unless you have more to invest.

coyrls

username12345678 wrote: »

I may be misunderstanding your post but i'm not sure that's how it works.

My yield is predicated on my purchase price, if the price drops it doesn't mean my personal yield drops in tandem. Assuming no change to the underlying dividend yields from the IT's investments then my yield should remain steady.

Of course, someone who buys the same IT after a price drop will be receiving a higher yield than I will.

Well when yields are quoted it's against the current price. Dividends are not consistent regardless of economic circumstances.

coastline

username12345678 wrote: »

My question would be 'What happens to dividends during a bear market?'.

If dividend payouts have historically been maintained during market downturns (I don't know if this is the case) then providing the yield from your portfolio meets your income requirements then how is this not a less volatile method than using total return?

So for arguments sake a diversified pf of IT's which have a history of raising payouts that match inflation and meet your income needs would be a 'fire and forget' solution would it not?

In a downturn some companies would probably cut dividends if profit margins were under pressure.

There's a couple of long term charts in the links below showing the FTSE historic yield. Around the year 2000 the market had surged so the yield at the time was 2%. Again when the market fell later the yield was 6%. In general it has averaged well over 3%.

https://www.youinvest.co.uk/articles/investmentarticles/51254/how-need-income-could-underpin-uk-stocks

https://www.ukvalueinvestor.com/2015/05/the-ftse-100-at-5000-or-10000.html/

I posted something here a while ago regarding buying when markets fall but it seems most investors stick with their multi asset allocations.

https://forums.moneysavingexpert.com/showthread.php?p=74882834#post74882834

username12345678

Googling the question seems to suggest that a market collapse due to systemic reasons does not often impact the dividend stream from an otherwise profitable company.

Indeed, there are many companies that have continued to maintain (and raise) dividends for decades through multiple economic cycles.

Perhaps this is the pool where the IT's with outstanding records fish!

Thrugelmir

username12345678 wrote: »

I see your point specifically regarding currency swings over the last few years.

However, CTY for example, have increased their dividend for the last 50.

How many times have CTY used retained income reserves to cover any shortfall in that period? In essence smoothing the distribution. Yes you would have received an increased divided in cash. However in buying the shares you paid for this dividend as was already priced into NAV.

For example. BP after the Deepwater Horizon disaster didn't pay any dividends for 3 quarters. CTY would have had to cover this.

Nothing against CTY I should add. Just that things shouldn't always be taken at face value. Some IT's distribute a higher proportion of their income. Which given what I said above would result in a fluctuating dividend. Doesn't make them any worse investments. Simply that they cannot brag on their marketing literature of an unbroken run.

Thrugelmir

coastline wrote: »

In a downturn some companies would probably cut dividends if profit margins were under pressure.

Banks following the financial crisis of 2007/08 are good examples. In the years before mainstays of UK based income portfolios. As regarded as highly dependable. Which of course they weren't. With the likes of Northern Rock completely going from hero to zero in a matter of days.

username12345678

Thrugelmir wrote: »

How many times have CTY used retained income reserves to cover any shortfall in that period? In essence smoothing the distribution. Yes you would have received an increased divided in cash. However in buying the shares you paid for this dividend as was already priced into NAV.

For example. BP after the Deepwater Horizon disaster didn't pay any dividends for 3 quarters. CTY would have had to cover this.

Nothing against CTY I should add. Just that things shouldn't always be taken at face value. Some IT's distribute a higher proportion of their income. Which given what I said above would result in a fluctuating dividend. Doesn't make them any worse investments. Simply that they cannot brag on their marketing literature of an unbroken run.

At what point do you take 50 years of rising dividends as a reasonable indicator of future performance? I get that the smoothing effect means you don't always receive the dividends you would have in good years with the corollary that those profits retained by the IT will be paid out in bad.

I'm still not quite seeing where the flaw is in creating an income based pf using these long-standing IT's as long as the yield is meeting your requirements.

Where is the risk compared to using the total return option which seems to be subject the vagaries of share price movement?

I hope i'm not coming across as argumentative for the sake of it here, i'm genuinely interested.