City of London Investment Trust (CTY)

NedS

Any other income investors holding CTY here or is UK dividend investing totally out of fashion in 2020?

I've held CTY on and off over the years and built a sizeable holding during the Covid crash, and of course the number one question is whether that 6% dividend yield is going to be sustainable.

Reading this week's year end results, I'm feeling more confident:

https://cdn.janushenderson.com/webdocs/CTYAnnualReport2020.pdf

Looks like the market agrees as the discount has closed a little today. Anyone else have a view on CTY or care to discuss?

tacpot12

I hold CTY in my SIPP and UK Dividend investing is still the major focus of my pension investment. I bought CTY (and most of the rest of my portfolio) with the intention of holding it indefinitely. A short-term crisis like a pandemic is not enough to change my mind about CTY. 

green_man

Same, here. I hold CTY, the dividend might soften slightly, but I won’t be selling at current levels.

talexuser

I dumped it recently at around 20% down (now around 30% down), since the yield is not enough to cover a large fall in total return for me (I don't take income yet), and it was by far the worst faller of all my funds. I had regarded it as a core to keep but started to move funds out of the UK since the referendum.

Thrugelmir

 NedS said:

I've held CTY on and off over the years and built a sizeable holding during the Covid crash, and of course the number one question is whether that 6% dividend yield is going to be sustainable.

Reading this week's year end results, I'm feeling more confident:

Reading the annual results most likely not.  When the market is yielding 3-4% , only way to sustain a 6% yield is out of capital reserves. 

gollum007

I think it's a tad more nuanced than that

The report states that before this started, they had reserves of £58.3 million. They've used £14.4 million, across 2 dividends in the height of this thing.

Assuming *no* restored dividends, that's ~18 months before the reserves are exhausted at the current dividend level.
However, plenty of their holdings are either restoring or increasing the dividends. (BAE, Persimmon etc)

I don't expect a meaningful dividend increase any time soon (**maybe a token to preserve the increase record**), but IMHO cuts are less likely.

tacpot12

I don't think any sensible IT manager will want to run their reserves down to zero, but the ability to continue to pay dividends at some level was a major factor in my choice of ITs as a major part of the income-focused section of my portfolio. realistically I won't know whether this approach has paid off until  April next year when I can look back over the previous 12 months and the 12 months before that. 

itwasntme001

Seems like a very poor trust to select as part of your asset allocation.  Comparing it to the FTSE100 index tracker, it does not seem to have even beaten that over the last 5 years.  I held a FTSE100 tracker myself and luckily sold out at the highs locking in a total return of nearly 40%.

gollum007

itwasntme001 said:

Seems like a very poor trust to select as part of your asset allocation.  Comparing it to the FTSE100 index tracker, it does not seem to have even beaten that over the last 5 years.  I held a FTSE100 tracker myself and luckily sold out at the highs locking in a total return of nearly 40%.

And you've completely missed the point of this investment. Total returns aren't everything by a long shot, just the current fashion......

The reason I suspect most have invested in CTY and similar is the long standing record of dividend increases at or above inflation. With this sort of trust, it's not the total return you're worried about, but the reliable ongoing income stream.

itwasntme001

gollum007 said:

itwasntme001 said:

Seems like a very poor trust to select as part of your asset allocation.  Comparing it to the FTSE100 index tracker, it does not seem to have even beaten that over the last 5 years.  I held a FTSE100 tracker myself and luckily sold out at the highs locking in a total return of nearly 40%.

And you've completely missed the point of this investment. Total returns aren't everything by a long shot, just the current fashion......

The reason I suspect most have invested in CTY and similar is the long standing record of dividend increases at or above inflation. With this sort of trust, it's not the total return you're worried about, but the reliable ongoing income stream.

Total return is all that matters in anything and it always has been.  The idea of just buying for the dividend and not caring about what happens to the capital value is just absurd.  If i buy a property yielding me £x a year and the capital value falls 50% but the yield is still £x and rising each year, I damn well care that I just lost 50% of my capital (assuming unleveraged).  Same goes for stocks.

Taking an income from stocks doe snot have to be only from dividends.  It can be done from selling one or more shares.

Prism

gollum007 said:

itwasntme001 said:

Seems like a very poor trust to select as part of your asset allocation.  Comparing it to the FTSE100 index tracker, it does not seem to have even beaten that over the last 5 years.  I held a FTSE100 tracker myself and luckily sold out at the highs locking in a total return of nearly 40%.

And you've completely missed the point of this investment. Total returns aren't everything by a long shot, just the current fashion......

The reason I suspect most have invested in CTY and similar is the long standing record of dividend increases at or above inflation. With this sort of trust, it's not the total return you're worried about, but the reliable ongoing income stream.

To pay these higher dividends CTY (and others) will be either selling equity to make up the income shortfall or taking on loans. I understand that a trust like this makes those choices for you and therefore simplifying the decision but you could still do that yourself by selling your own selection of shares and fund units. 

Whether or not CTY should be considered as a good trust is not based solely on their dividend yield or payment policy but over time on their total return - which to be fair is not bad over the long term but not so good recently.