Dividend hopper?

Malthusian

ChilliBob said:

Why is it not £100k then £1k, and £100k and £2k though?

Because in both cases the funds have gone ex-dividend so the £1k / £2k comes out of the £100k.

The ex dividend was 1st April I believe, yes, the price has dropped but it just looks like a normal movement - if you didn't know that was Ex dividend date you'd have no way of knowing, and eith 1-2% moves normal, how can you know its attributed to the dividend and not normal market movement?

Because there ain't no such thing as a free lunch. Fund goes ex-dividend, the dividend comes out of the unit price.

For an equity fund with a relatively low yield the decrease in the unit price will be "lost in the noise" of everything else affecting the daily price movements. Doesn't mean it didn't happen.

If a fund has a bid-offer spread (cost of entry into the fund) of 0.1% you're not going to notice it in the daily ups and downs, it doesn't mean it doesn't exist.

If a fund held 0.5% of its assets in Carillion then the total loss of that investment will be invisible in the daily unit price movements, that doesn't mean Carillion is actually still alive and kicking.

Malthusian

Like many people who place too much importance on dividends, you are viewing dividends as magic money that appears from nowhere, or is given to you by the generosity of the fund manager / directors, rather than what they actually are, which is money that you already own moving into a different account that you also already own.

It is a "not seeing the wood for the trees" problem, i.e. not perceiving the entity as a whole.

If I own a patch of woodland worth £100k, cut down 1% of the trees and sell the timber for £1k, sell the rest of the forest for £99k, then buy a plot which is identical but hasn't yet harvested any timber for £100k, how much money have I made?

ChilliBob

Right, so looking at something like a ftse 100 tracker, probably with a way higher yield, and say annual dividend compared to quarterly this would probably show up glaringly.

If dividend taxation is higher than cgt, which it is, then it begs the question of what's the point? Surely its better to have the capital stay at the price it is, and if you need income, sell some?

Sorry, I'm fairly new to this, any dividends I had received before were in a private company share scheme on a mostly yearly basis and eith pricing only yearly so I'd not have noticed what you mention. 

ChilliBob

Malthusian said:

Like many people who place too much importance on dividends, you are viewing dividends as magic money that appears from nowhere, or is given to you by the generosity of the fund manager / directors, rather than what they actually are, which is money that you already own moving into a different account that you also already own.

It is a "not seeing the wood for the trees" problem, i.e. not perceiving the entity as a whole.

If I own a patch of woodland worth £100k, cut down 1% of the trees and sell the timber for £1k, sell the rest of the forest for £99k, then buy a plot which is identical but hasn't yet harvested any timber for £100k, how much money have I made?

As above really, I've only experienced these dividends in a private setting, which is Berry different. The dividends were very generous, and the share price increased every year on year, so yeah, it did seem like magic money!

It's odd now you've put it like that, as many places refer to dividends as 'rewards' for loyal investors etc. Which doesn't really make sense now!

It seems more akin to a bank account that pays 1% "interest annually, but to do this it then takes 1% off your balance.. So pointless..

I'm far from a dividend chaser, as from what little I know high paying dividend companies tend to not grow much or do so much, massive generalisation of course! 

masonic

ChilliBob said:

Malthusian said:

Like many people who place too much importance on dividends, you are viewing dividends as magic money that appears from nowhere, or is given to you by the generosity of the fund manager / directors, rather than what they actually are, which is money that you already own moving into a different account that you also already own.

It is a "not seeing the wood for the trees" problem, i.e. not perceiving the entity as a whole.

If I own a patch of woodland worth £100k, cut down 1% of the trees and sell the timber for £1k, sell the rest of the forest for £99k, then buy a plot which is identical but hasn't yet harvested any timber for £100k, how much money have I made?

As above really, I've only experienced these dividends in a private setting, which is Berry different. The dividends were very generous, and the share price increased every year on year, so yeah, it did seem like magic money!

It's odd now you've put it like that, as many places refer to dividends as 'rewards' for loyal investors etc. Which doesn't really make sense now!

It seems more akin to a bank account that pays 1% "interest annually, but to do this it then takes 1% off your balance.. So pointless..

I'm far from a dividend chaser, as from what little I know high paying dividend companies tend to not grow much or do so much, massive generalisation of course! 

Dividends come from company earnings. The company makes the same earnings whether they distribute that money to shareholders or not. If they don't distribute , then you still own a share of that money and whatever is done with it, it just doesn't find its way into your bank account until you sell your shares.

Prism

ChilliBob said:

Right, so looking at something like a ftse 100 tracker, probably with a way higher yield, and say annual dividend compared to quarterly this would probably show up glaringly.

If dividend taxation is higher than cgt, which it is, then it begs the question of what's the point? Surely its better to have the capital stay at the price it is, and if you need income, sell some?

Sorry, I'm fairly new to this, any dividends I had received before were in a private company share scheme on a mostly yearly basis and eith pricing only yearly so I'd not have noticed what you mention. 

Probably the best way to see it is to load up a chart of an accumulation fund and then add the income version of the same fund to the same chart. Then compare the difference on the ex-dividend days. You should see the drops.

Malthusian

ChilliBob said:

It seems more akin to a bank account that pays 1% "interest annually, but to do this it then takes 1% off your balance.. So pointless..

It's more akin to a bank that pays 1% interest annually, and that can be either paid out or added to the account balance.

You are entitled to the interest whether you ask for it to be paid out or not. Likewise, a shareholder is entitled to a share of the company's profits and assets whether it pays them out as dividend or not.

Whether it's pointless or not is in the eye of the investor and depends on their circumstances.

coastline

Prism said:

ChilliBob said:

Right, so looking at something like a ftse 100 tracker, probably with a way higher yield, and say annual dividend compared to quarterly this would probably show up glaringly.

If dividend taxation is higher than cgt, which it is, then it begs the question of what's the point? Surely its better to have the capital stay at the price it is, and if you need income, sell some?

Sorry, I'm fairly new to this, any dividends I had received before were in a private company share scheme on a mostly yearly basis and eith pricing only yearly so I'd not have noticed what you mention. 

Probably the best way to see it is to load up a chart of an accumulation fund and then add the income version of the same fund to the same chart. Then compare the difference on the ex-dividend days. You should see the drops.

ISF.L the FTSE 100 tracker went XD on the 17th of March.
BlackRock iShares Core FTSE 100 UCITS ETF GBP (Dist) (ISF) Dividends (dividendmax.com)
A short term chart of the ISF.L and the accumulator CUKX.L shows the difference around that date 17th March. CUKX the orange line is still above the black line ISF.L
iShares PLC iShares Core FTSE 100 UCITS ETF Dist, UK:ISF Advanced Chart - (LON) UK:ISF, iShares PLC iShares Core FTSE 100 UCITS ETF Dist Stock Price - BigCharts.com (marketwatch.com)
Short term charts in months clearly show the dividend building up in an income fund before distribution .Over years as below in the 2 year chart the gap gets wider as expected.
iShares PLC iShares Core FTSE 100 UCITS ETF Dist, UK:ISF Advanced Chart - (LON) UK:ISF, iShares PLC iShares Core FTSE 100 UCITS ETF Dist Stock Price - BigCharts.com (marketwatch.com)

ChilliBob

Thanks for the detail @coastline that's really helpful. I tried myself with a couple of funds and could see what you meant when I plotted inc and acc on the same chart.