Passive / Active investments for income.

Thrugelmir

NedS said:

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

RPI has generally run 1% higher every year. Since 1984 I'd expect a considerable variance.  6p over 36/37 years is to low.  

NedS

Thrugelmir said:

NedS said:

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

RPI has generally run 1% higher every year. Since 1984 I'd expect a considerable variance.  6p over 36/37 years is to low.  

I just used an RPI inflation calculator google returned on the web, and plugged in the starting figures. Feel free to do likewise using your inflation calculator of choice if you think the figures are suspect.

Thrugelmir

NedS said:

Thrugelmir said:

NedS said:

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

RPI has generally run 1% higher every year. Since 1984 I'd expect a considerable variance.  6p over 36/37 years is to low.  

I just used an RPI inflation calculator google returned on the web, and plugged in the starting figures. Feel free to do likewise using your inflation calculator of choice if you think the figures are suspect.

You are right. That's surprising. Though CPI was officially only launched in 1997.  

coastline

Similar could be said about the FTSE 100 going back to it's start date 1985 ? Original dividend was around 3.25% and the index at 1000. 

FTSE-100-Dividend-yield-over-30-years-2015-05.png (605×341) (ukvalueinvestor.com)

Using the BofE calculator £32.50 in 1985 would be just over £100 today.

Inflation calculator | Bank of England

The FTSE 100 today stands at 7300 and the dividend yield at 3.43% which is £250 in dividend.

Dividend Yields - FTSE 100 (dividenddata.co.uk)

This link although its the All Share will go back to 1986 so you can get the picture.

Chart Tool | Trustnet

Thrugelmir

coastline said:

Similar could be said about the FTSE 100 going back to it's start date 1985 ? Original dividend was around 3.25% and the index at 1000. 

FTSE-100-Dividend-yield-over-30-years-2015-05.png (605×341) (ukvalueinvestor.com)

Using the BofE calculator £32.50 in 1985 would be just over £100 today.

Inflation calculator | Bank of England

The FTSE 100 today stands at 7300 and the dividend yield at 3.43% which is £250 in dividend.

Dividend Yields - FTSE 100 (dividenddata.co.uk)

This link although its the All Share will go back to 1986 so you can get the picture.

Chart Tool | Trustnet

BOE base rate was around 11%-13% in 1985. Shares needed more than just dividend yield to be attractive investments back then. Growth had to be tangible not just illusory. 

AlanP_2

Putting aside the debate about income or total return for a minute and looking at the fundamental situation of the OP:

Looking to invest £200k over next 7 years or so (not sure how much is available today and not sure how much eavch month / year will be added to the pot).

The £200k will be used to generate an annual income once retired (somehow).

ISA is the wrapper being considered.


Hopefully that is a good summary, but the OP can correct me if I have got anything wrong.


OK, then if the desire is an income in retirement then why not use a pension (SIPP) instead of an ISA and gain the benefit of tax relief as well?

Depending on salary not all the £200k might fit inside the SIPP - you are limited to annual salary in tax year for pension contributions. So for you it would be [Annual Salary - existing pension contributions] that could be paid in gross. You pay 80% of that in to a SIPP and HMRC top it up by 25% to get you your effective 20% tax relief (£80 paid in by you + £20 from HMRC = £100).

When you come to withdraw in later years you get 25% tax free (so £25 of that hypothetical £100 in the SIPP) and pay tax on the rest (so 20% of £80 = £16 tax paid). Net effect is you contribute £80 of your money and later withdraw £89. That is based on current tax rates and rules re tax free lump sum and assumes all the £80 would be taxed which would depend on your overall income in the tax year.


It seems to me that a SIPP provides you with a larger pot at retirement than an ISA (assuming the same investment choices within each).


Worth checking your State Pension forecast accurately as well, being a member of the CS DB scheme you will have been contracted out and paid a lower rate of NI which could leave a shortfall in potential SP. The shortfall could be made up by paying additional NI on a voluntary basis, but everyone's circumstances are different which is why the forecast is the starting point.

Linton

It is better to use an S&S ISA for ongoing income from dividends/interest if you can arrange to have the choice since each payment will be taxed if taken from a pension.  This wont affect your finances directly as it makes no difference to you whether you are taxed paying out from a pension or before buying the investment when setting up your ISA.   However it does use up valuable ongoing tax allowance/band level.

The other reason for distributing dividends/interest from an S&S ISA is that it can be done automatically (I guess dependent on your platform) as and when the dividend turns up.  However paying out from a pension in the same way is much more difficult, probably requiring an explicit request and a form to be filled in each time the drawdown amount changes. 

Thrugelmir

Linton said:

However paying out from a pension in the same way is much more difficult, probably requiring an explicit request and a form to be filled in each time the drawdown amount changes. 

Set up a monthly amount to receive as a "wage". Part taxed, part tax free lump sum. Reinvest excess funds back into a S&S ISA. 

General Investment Accounts can be utilised as well. Capital Gains tax allowance can be utilised as well. 

Linton

Thrugelmir said:

Linton said:

However paying out from a pension in the same way is much more difficult, probably requiring an explicit request and a form to be filled in each time the drawdown amount changes. 

Set up a monthly amount to receive as a "wage". Part taxed, part tax free lump sum. Reinvest excess funds back into a S&S ISA. 

General Investment Accounts can be utilised as well. Capital Gains tax allowance can be utilised as well. 

You can do that but it involves work every month to ensure that you have the right amount of cash available to pay the "wage" dependent on how much has been added in dividends/interest.

My point is that were you to be relying on passive income then in an S&S ISA it can be set up so that no effort at all is required, every dividend is aurtmatically transferred at no charge.  At least this is the case with II.  

Thrugelmir

Linton said:

Thrugelmir said:

Linton said:

However paying out from a pension in the same way is much more difficult, probably requiring an explicit request and a form to be filled in each time the drawdown amount changes. 

Set up a monthly amount to receive as a "wage". Part taxed, part tax free lump sum. Reinvest excess funds back into a S&S ISA. 

General Investment Accounts can be utilised as well. Capital Gains tax allowance can be utilised as well. 

You can do that but it involves work every month to ensure that you have the right amount of cash available to pay the "wage" dependent on how much has been added in dividends/interest.

Holding cash is no bad thing. No need to always be fully invested.