Passive / Active investments for income.

Alexland

Thrugelmir said:

Suggesting that the oil companies (for example) are in decline is somewhat premature. Orsted morphed out of the Danish Oil and Gas Company to become the renewable entity it is today. On a free cashflow basis both Shell and BP spew out a vast amount more. Transformation is well within their grasp. Higher oil and gas prices as new exploration is curtailed only adds to their armoury. I've been following Total for some 3 years now.

I'd agree about Total and it's a top 10 holding in MUT but unsure the energy transition will be kind to Shell or BP. If one of the best ideas that Shell can come up for sustainable future revenues with is white labelling BT broadband you have to worry for them.

ColdIron

AsifM068 said:

I am still at the scoping out stage, but I am looking for a dividend yield of 5% from the 200k when 60.

Quite achievable but I'd manage your expectations regarding capital growth

Audaxer

AsifM068 said:

eskbanker said:

Linton said:

AsifM068 said:

As an aside and slightly off tangent are pension annuities really that bad in terms of value? At 60, my DB pension will kick in but will need another 10K p/a to supplement my pension. I should have around 200K to invest within my ISA to invest at 60 purely as a source of income. Any thoughts?

I do not believe that taking a steady £10K annually, inflation linked, from a £200K portfolio is safely sustainable in the long term. Which of those characteristics would you be prepared to sacrifice?

OP - is the idea to use this pot to generate income only to bridge the gap for seven years until the state pension effectively fills it?  Do you have a forecast for that, from https://www.gov.uk/check-state-pension ?

No. For the next seven years until I am 60, my current investments will continue to grow through a mixture of the Vanguard Global ALL Cap Index Fund and 3 Royal London Equity funds all held within an ISA. When I am 60, I will receive my Civil Service Defined Benefit Pension which is valued at 10k p/a plus a 24K lump sum payment. This 10K I hope to supplement with a further 10k from an income generating investment from a lump sum of about 200K depending how my ISAs continue to perform for the next 7 years.  

I am still at the scoping out stage, but I am looking for a dividend yield of 5% from the 200k when 60.

Yes, but if you only need £20k income, by the time you are 67 that will be mostly covered by your £10k DB pension and your State Pension, so only likely to need a much smaller percentage from your investments from age 67 onwards if you get your SP at that age. 

MaxiRobriguez

Alexland said:

I wouldn't touch a passive income fund with a barge pole as you risk just sucking up a load of poor quality high yield companies.
There are investment trusts that get a good balance of yield and capital growth while still investing in good quality companies if you are willing to spend the time on selecting and monitoring them. The costs are a bit higher but that is generally covered by the enhanced return they achieve by using a conservative amount of gearing.

Sorry to take this back to page one, but this was in response to Vanguard's VHYL fund, which seems to me a reasonable fund for obtaining good (but not excessive) dividend yield in reasonably quality companies.

The top twenty holdings for example are: TSCM, JPM, J&J, Home Depot, Samsung, Nestle, P&G, BoA, Roche, Exxon, Pfizer, Cisco, Verizon, Toyota, Intel, Pepsi, Coca Cola, Chevron, Broadcomm and AT&T and they make up about 20% of the total fund. Unilever, McDonalds, Siemens, BlackRock, Diageo, HSBC etc follow soon after. 

They are all steady, cash generative and (Exxon perhaps aside) likely have high sticking power for the foreseeable future.

I use this fund (and a similar one in my pension) as a de-facto means of reducing the growth/tech dominance in my US fund. Obviously with hindsight that's been a mistake over the last couple of years but feels like a better position to be in currently with the inflation/growth picture as it is.

We'll see.

Alexland

At circa 3% VHYL is paying roughly double the global average dividend yield which would be like finding a UK income fund paying around 7%. Yes some of the names look reasonable but the weakness of the sales and earnings growth is stark when compared to a more balanced allocation such as VWRL. I agree there will be points in the cycle where such shares do well and it might be OK as part of a broader allocation but would you really want it as your only £200k investment?

MaxiRobriguez

Alexland said:

but would you really want it as your only £200k investment?

No..

It makes up only 2.5% of my total portfolio to be honest, so it's not a particularly aggressive managed underweighting of the other US fund.

But I do have a good 20% of my portfolio in a handful of UK dividend payers. Unilever, BAE, BATS, Evraz, M&G, Persimmon, RB, Barclays, GSK and Lloyds which come with a yield figure very close to 7%. 

Thrugelmir

Alexland said:

Thrugelmir said:

Suggesting that the oil companies (for example) are in decline is somewhat premature. Orsted morphed out of the Danish Oil and Gas Company to become the renewable entity it is today. On a free cashflow basis both Shell and BP spew out a vast amount more. Transformation is well within their grasp. Higher oil and gas prices as new exploration is curtailed only adds to their armoury. I've been following Total for some 3 years now.

I'd agree about Total and it's a top 10 holding in MUT but unsure the energy transition will be kind to Shell or BP. If one of the best ideas that Shell can come up for sustainable future revenues with is white labelling BT broadband you have to worry for them.

When you've cash. Who needs ideas. Buying an existing business and scaling it up is far quicker. 

NedS

Alexland said:

Linton said:

I do not believe that taking a steady £10K annually, inflation linked, from a £200K portfolio is safely sustainable in the long term.

I guess that's what the OP has noticed when doing their initial research into trusts like the popular CTY which pays nearly 5% but the share price is still around 10% below its pre covid crash level because it was holding too many poor quality wasting assets.

But isn't that exactly what CTY has delivered over the last 30 plus years?

From data I can find, the share price has increased from 41p in Dec 1984 to 394p today, some 37 years later. If growth had matched CPI inflation, the share price would stand around 135p currently (141p using RPI), so capital growth has outperformed CPI inflation by around 3 fold. It has done this through several market cycles and a number of major market crashes, whilst all the time paying out rising dividends (without dividends reinvested).

The dividend has risen from 7.18p in 2000 to 19.1p in 2021. If the dividend had risen by CPI inflation over the same period, it would currently stand at around 12.75p (13p using RPI) so again has outperformed inflation over the last 21 years, by around 50% (I can't find dividend data going back further than that). Further, the dividend has risen every year, including last year during Covid, and the trust still has substantial revenue reserves it can deploy to ensure the dividend keeps rising.

I should disclose I hold CTY in my income portfolio and I am happy with it's long term performance as it does (and continues to do) what it says on the tin. Of course past performance in no guarantee of future performance.

Thrugelmir

NedS said:

Alexland said:

Linton said:

I do not believe that taking a steady £10K annually, inflation linked, from a £200K portfolio is safely sustainable in the long term.

I guess that's what the OP has noticed when doing their initial research into trusts like the popular CTY which pays nearly 5% but the share price is still around 10% below its pre covid crash level because it was holding too many poor quality wasting assets.

But isn't that exactly what CTY has delivered over the last 30 plus years?

From data I can find, the share price has increased from 41p in Dec 1984 to 394p today, some 37 years later. If growth had matched CPI inflation, the share price would stand around 135p currently, so capital growth has outperformed CPI inflation by around 3 fold. It has done this through several market cycles and a number of major market crashes, whilst all the time paying out rising dividends (without dividends reinvested).

The dividend has risen from 7.18p in 2000 to 19.1p in 2021. If the dividend had risen by CPI inflation over the same period, it would currently stand at around 12.75p so again has outperformed inflation over the last 21 years, by around 50% (I can't find dividend data going back further than that). Further, the dividend has risen every year, including last year during Covid, and the trust still has substantial revenue reserves it can deploy to ensure the dividend keeps rising.

I should disclose I hold CTY in my income portfolio and I am happy with it's long term performance as it does (and continues to do) what it says on the tin. Of course past performance in no guarantee of future performance.

In the past. RPI was the measure for inflation to benchmark against. 

NedS

Thrugelmir said:

NedS said:

But isn't that exactly what CTY has delivered over the last 30 plus years?

From data I can find, the share price has increased from 41p in Dec 1984 to 394p today, some 37 years later. If growth had matched CPI inflation, the share price would stand around 135p currently (141p using RPI), so capital growth has outperformed CPI inflation by around 3 fold. It has done this through several market cycles and a number of major market crashes, whilst all the time paying out rising dividends (without dividends reinvested).

The dividend has risen from 7.18p in 2000 to 19.1p in 2021. If the dividend had risen by CPI inflation over the same period, it would currently stand at around 12.75p (13p using RPI) so again has outperformed inflation over the last 21 years, by around 50% (I can't find dividend data going back further than that). Further, the dividend has risen every year, including last year during Covid, and the trust still has substantial revenue reserves it can deploy to ensure the dividend keeps rising.

I should disclose I hold CTY in my income portfolio and I am happy with it's long term performance as it does (and continues to do) what it says on the tin. Of course past performance in no guarantee of future performance.

In the past. RPI was the measure for inflation to benchmark against. 

Adjusted using RPI inflation, doesn't make a material difference