City of London Investment Trust (CTY)

Linton

The key feature of CTY is that the fund is managed with the objective of providing a steadily rising income. It never having reduced its dividend for decades is not a matter of luck, but rather deliberate policy.  The aims of the fund manager backed by strong incentivisation are exactly in line with those of the investors.  Pity the poor CTY manager at the helm when it fails to meet its objective.  The perfect situation.

Ciprico

FTSE100 + UK equity in general is very unpopular currently - maybe a good reason to buy it.
Contrast US tech equity, unfeasibly popular at the moment, maybe a good reason to sell it.
Having said that I have no intention of swapping my SMT for CTY !

NedS

coyrls said:

The SWR approach is not being described correctly.  It is not taking a fixed % out of your portfolio every year.  The first withdrawal is a set percentage, in subsequent years the initial withdrawal is increased by inflation, there is no reference to a percentage of the portfolio.  When comparing a SWR approach with a dividend approach the question should be will the initial value of dividends taken increase by inflation each year or not?  If not then it is not equivalent to a SWR approach.

CTY has increased it's dividend every year for 53 years and over that time the increase has outpaced inflation. It is a stated policy goal of the trust to increase it's dividend every year as well as to provide some capital growth. So by your criteria can be directly compared with a SWR approach of starting with a fixed percentage which then increases with inflation. Both approaches start with a fixed amount which aims to increase steadily over time.

cloud_dog

NedS said:

cloud_dog said:

NedS said:.

@Linton are you able to share what you hold in your income portfolio? It sounds like it has been quite successful during Covid-19.

Ned, have you come across @JohnRo  thread on building an income portfolio?  Fabulous insight in to the planing, execution, monitoring, and progression.

I haven't, no, and I couldn't find it from looking at John's profile page. Are you able to provide a link? Thank you.
EDIT - found it - thank you. Looks like an enjoyable (and lengthy) read.

There you go.  I had forgotten that he had undertaken a significant capital expenditure so he was, sort of, back to square one.  Even so if you trawl back through there is some useful insight.

itwasntme001

NedS said:

coyrls said:

The SWR approach is not being described correctly.  It is not taking a fixed % out of your portfolio every year.  The first withdrawal is a set percentage, in subsequent years the initial withdrawal is increased by inflation, there is no reference to a percentage of the portfolio.  When comparing a SWR approach with a dividend approach the question should be will the initial value of dividends taken increase by inflation each year or not?  If not then it is not equivalent to a SWR approach.

CTY has increased it's dividend every year for 53 years and over that time the increase has outpaced inflation. It is a stated policy goal of the trust to increase it's dividend every year as well as to provide some capital growth. So by your criteria can be directly compared with a SWR approach of starting with a fixed percentage which then increases with inflation. Both approaches start with a fixed amount which aims to increase steadily over time.

Looking at the past 18 years, it appears CTY has grown more or less in line with inflation.  So the dividends, if they have also grown by inflation, could be fully spent keeping the real value of your investment 18 years intact.

However, CTY is a risky investment and so you need to be compensated for taking this risk.  If you look at it in risk adjusted terms and especially in terms of opportunity cost, CTY clearly has been a very poor investment.

I understand the aim is to draw income from it without the bother of selling the capital units.  However, surely something like a government bond fund would have been a far superior investment for this purpose, over this particular time frame?

Audaxer

NedS said:

coyrls said:

The SWR approach is not being described correctly.  It is not taking a fixed % out of your portfolio every year.  The first withdrawal is a set percentage, in subsequent years the initial withdrawal is increased by inflation, there is no reference to a percentage of the portfolio.  When comparing a SWR approach with a dividend approach the question should be will the initial value of dividends taken increase by inflation each year or not?  If not then it is not equivalent to a SWR approach.

CTY has increased it's dividend every year for 53 years and over that time the increase has outpaced inflation. It is a stated policy goal of the trust to increase it's dividend every year as well as to provide some capital growth. So by your criteria can be directly compared with a SWR approach of starting with a fixed percentage which then increases with inflation. Both approaches start with a fixed amount which aims to increase steadily over time.

I agree. I am retired and have a fairly small part of my portfolio in CTY. While it is a bit concerning that the value has fallen, if it manages to keep increasing the dividends throughout my retirement, like it has done for the previous 53 years, I will be quite happy with that. 

Thrugelmir

The problem is that the big hitters have left the scene as far as dividends are concerned HSBC, Shell, BP etc. Looking at the current top 10 holdings some of the yields are as follows. 
Unilever - 2.99%
Diageo - 2.64%
RELX - 2.65%
Prudential - 3.36%
Reckitt - 2.31%

Shares that wouldn't look out of place in a trust such as FGT under Lindsell Train management. Which historically would have been better a better investment to hold in comparison. 

tiengomar

hi, resurrecting this post.
silly question but is something like city of london investment trust ever likely to go bust?

Thrugelmir

tiengomar said:

hi, resurrecting this post.
silly question but is something like city of london investment trust ever likely to go bust?

All the underlying investments held would need to go "bust" first. 

NedS

CTY just declared their latest dividend today, increasing 2.6% year on year, and predicted to be fully covered by earnings with a surplus to start replenishing the reserves:

7 April 2022

 

THE CITY OF LONDON INVESTMENT TRUST PLC

Dividend on Ordinary Shares

The Board of The City of London Investment Trust plc announces that:

A third interim dividend of 5.00p per ordinary share of 25p, in respect of the year ending 30 June 2022, will be paid on 31 May 2022 to holders registered at the close of business on 29 April 2022. The Company's shares will go ex-dividend on 28 April 2022.

The Board intends to declare a fourth interim dividend of 5.00p per share for the year to 30 June 2022. The fourth interim dividend will be declared in July 2022. This would make a total dividend for the year to 30 June 2022 of 19.60p per share, an increase of 2.6% on the previous year and the Company's 56th consecutive annual increase. The 19.60p dividend for the year to 30 June 2022 is expected, based on our current projections for the revenue account, to be fully covered by earnings with a surplus carried to the revenue reserve.

CTY is still a core holding in my income portfolio. I am confident, having weathered covid, that CTY is about as reliable source of income as exists and should have me well covered in the stormy times ahead.