City of London Investment Trust (CTY)

Eco_Miser

westy22 said:

I can fully understand the attraction of dividend income streams in the days when selling shares was both time consuming and expensive but today, when selling shares is instantaneous and usually costs less than £10, I'm far less convinced. Total Return is certainly my target.

There's still the decision of what, when, and how much to sell, especially after the market has fallen. CTY provides a nice little supplement to my income every quarter with absolutely no (further) effort (or thought, which is relevant at my age) on my part.

Currently the capital value is down, but so long as CTY continues in business paying a reasonable dividend, that's a problem for my heirs, not me.

Linton

westy22 said:

I can fully understand the attraction of dividend income streams in the days when selling shares was both time consuming and expensive but today, when selling shares is instantaneous and usually costs less than £10, I'm far less convinced. Total Return is certainly my target.

If you are after long term growth than obviously Total Return makes sense.  However if you need regular income for your day to day expenditure focusing on Total Return has the risk of over-dependence on Growth as opposed to Defensive shares as Growth is currently proving a better Total Return though that has not always been the case. Because of their greater volatility Growth investments seem less appropriate for providing a steady income.

Selling shares each time you want some income involves effort and decision-making as to which fund(s) to sell or possibly during a crash whether to use cash reserves.  My highly diversified income portfolio provides a steady income with zero monthly effort on my part - all dividends/interest received by the platform is paid directly into my current account.  So far the effect of Covid on my income has been indistinguishable from the normal monthly variation.

itwasntme001

LHW99 said:

itwasntme001 said:

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.

Logically, total return versus dividend should produce the same result over the long term - as long as you do not want to take out more than would be returned as dividends.

As you said originally " I held a FTSE100 tracker myself and luckily sold out at the highs locking in a total return of nearly 40%."

Had you not been lucky, you could probably still be looking at a capital loss. Surely, you only need to care about a capital loss, at the point you actually sell (whether property, stocks, fine art whatever).

If you can enjoy life on the dividends received, great. If you cannot, you need growth stocks in order to be able (hopefully) to extract more. However, you are likely to see wider fluctuations in these than in dividends, and if you need money to live, and have to sell stocks to obtain it when values have fallen you will incur a capital loss, and perhaps have issues going forward - the dreaded "sequence of returns" problem.

Why should total return vs dividend produce the same result over the long term?  They could, sure, but by no means they should.

I got lucky in selling the FTSE100 in terms of what happened to it just a few months later.  But my decision to sell was due to the limited upside potential I saw in the index as a whole, so perhaps some of my decision to sell was skill.  I did sell Woodford a year before it went under, saw the fund as not meeting my original requirements and became way too risky.  Perhaps luck also but maybe some skill?

Dividends and capital values are related and not merely due to the fact that the calculation of yield of the former depends partly on the value of the latter.  Companies that pay out higher than average dividends usually have a reason for doing so and a lot of the time it is because they can not see how their cash flow can be reinvested back into the business for an adequate enough return.  There is nothing wrong of course in making that decision and it certainly looks to have been optimal for many businesses as evidenced by their stock falls as a result of their businesses suffering (not just due to the pandemic).  But to think it'll all be fine because the capital won't be touched yet is being way too complacent as in the end, the total return does matter when you look at how the investment ends up meeting your needs and desires in life.

One thing I have learnt in my relatively short history in investing (I am in my 30s), is that there are no set rules for anything in this field and economic regimes and narratives have a huge influence on what does well and what doesn't.

coastline

Dividend investors will be glad to hear estimates for 2020 and 2021 are expected to increase.
FTSE 100 3.5% in 2020 and 4.2% in 2021. Might not be fashionable but it will help CTY investors.
https://www.dividenddata.co.uk/dividendyield.py?market=ftse100
https://www.ajbell.co.uk/dividend-dashboard

itwasntme001

NedS said:

Prism said:

Trusts like CTY handle all this stuff for an investor which is certainly worth something but only if the total return isn't too far off the benchmark.

or the investment meets your needs. I will (hopefully) have a DC pot of around £300k when I retire and would like an annual income of around £15k from it. I could invest for growth and draw down £15k per year and hope I never run out of money (30-40 years), or I could invest in CTY, take £18k dividend (or £15k, and reinvest £3k) and never need to touch my capital. I don't see many people recommending a 5-6% drawdown rate.

There are very good reasons for 5-6% drawdown rate not being recommended.  Take a look at index linked annuities and compare the rates.  Of course a 5-6% withdrawal rate could work out in the end, but it certainly is not safe under current market circumstances and you will only "think" it is safe closer to the end of life if it does work out....

itwasntme001

Eco_Miser said:

westy22 said:

I can fully understand the attraction of dividend income streams in the days when selling shares was both time consuming and expensive but today, when selling shares is instantaneous and usually costs less than £10, I'm far less convinced. Total Return is certainly my target.

There's still the decision of what, when, and how much to sell, especially after the market has fallen. CTY provides a nice little supplement to my income every quarter with absolutely no (further) effort (or thought, which is relevant at my age) on my part.

Currently the capital value is down, but so long as CTY continues in business paying a reasonable dividend, that's a problem for my heirs, not me.

With the risk that your heirs will hate you for having invested in CTY.

itwasntme001

Linton said:

westy22 said:

I can fully understand the attraction of dividend income streams in the days when selling shares was both time consuming and expensive but today, when selling shares is instantaneous and usually costs less than £10, I'm far less convinced. Total Return is certainly my target.

If you are after long term growth than obviously Total Return makes sense.  However if you need regular income for your day to day expenditure focusing on Total Return has the risk of over-dependence on Growth as opposed to Defensive shares as Growth is currently proving a better Total Return though that has not always been the case. Because of their greater volatility Growth investments seem less appropriate for providing a steady income.

Selling shares each time you want some income involves effort and decision-making as to which fund(s) to sell or possibly during a crash whether to use cash reserves.  My highly diversified income portfolio provides a steady income with zero monthly effort on my part - all dividends/interest received by the platform is paid directly into my current account.  So far the effect of Covid on my income has been indistinguishable from the normal monthly variation.

There are no hard and fast rules to say defensive stocks are less risky/volatile than growth stocks.  Under certain circumstances they could be, in others not at all.

I agree that dividends makes things easier when drawing an income, as there are no decisions to be made on when and what to sell.  However, that should not be confused with the risks you are taking and how much wealth can be generated over the long term.  If you do want income, there are better and more secure ways to achieve this (e.g. annuities).

Yes I get how annuity rates are so low, but how do you know that in the end, buying an annuity wouldn't have been better than that portfolio of dividend stocks?  You don't and that's the whole point.

Bravepants

itwasntme001 said:

Eco_Miser said:

westy22 said:

I can fully understand the attraction of dividend income streams in the days when selling shares was both time consuming and expensive but today, when selling shares is instantaneous and usually costs less than £10, I'm far less convinced. Total Return is certainly my target.

There's still the decision of what, when, and how much to sell, especially after the market has fallen. CTY provides a nice little supplement to my income every quarter with absolutely no (further) effort (or thought, which is relevant at my age) on my part.

Currently the capital value is down, but so long as CTY continues in business paying a reasonable dividend, that's a problem for my heirs, not me.

With the risk that your heirs will hate you for having invested in CTY.

Hopefully, his heirs won't value him for his wealth!

Linton

itwasntme001 said:

NedS said:

Prism said:

Trusts like CTY handle all this stuff for an investor which is certainly worth something but only if the total return isn't too far off the benchmark.

or the investment meets your needs. I will (hopefully) have a DC pot of around £300k when I retire and would like an annual income of around £15k from it. I could invest for growth and draw down £15k per year and hope I never run out of money (30-40 years), or I could invest in CTY, take £18k dividend (or £15k, and reinvest £3k) and never need to touch my capital. I don't see many people recommending a 5-6% drawdown rate.

There are very good reasons for 5-6% drawdown rate not being recommended.  Take a look at index linked annuities and compare the rates.  Of course a 5-6% withdrawal rate could work out in the end, but it certainly is not safe under current market circumstances and you will only "think" it is safe closer to the end of life if it does work out....

My income portfolio naturally generates around 6% all of which I take use for day to day spending.  A significant problem for an income portfolio is inflation matching.  Were that not to be required 5%-6% withdrawal rates may be OK.  The only way of achieving inflation matching income is to have better than inflation matching investments, which at the moment means  growth equity.  So yes, in my view it would be very risky to use the whole of your pension pot on dividend/interest focussed investments.
I have separate highly focussed income and growth portfolios with profits from the growth portfolio topping up the income portfolio when necessary at the annual review and rebalance.

Eco_Miser

itwasntme001 said:

Eco_Miser said:

westy22 said:

I can fully understand the attraction of dividend income streams in the days when selling shares was both time consuming and expensive but today, when selling shares is instantaneous and usually costs less than £10, I'm far less convinced. Total Return is certainly my target.

There's still the decision of what, when, and how much to sell, especially after the market has fallen. CTY provides a nice little supplement to my income every quarter with absolutely no (further) effort (or thought, which is relevant at my age) on my part.

Currently the capital value is down, but so long as CTY continues in business paying a reasonable dividend, that's a problem for my heirs, not me.

With the risk that your heirs will hate you for having invested in CTY.

And that will bother me how?

More likely they'll be grateful that I remembered them (they're not my children).