City of London IT

MarcoM

I guess a simpleton question here would be, can anyone see this stop paying dividends at some point if the current decline continues?

wmb194

MarcoM said:

I guess a simpleton question here would be, can anyone see this stop paying dividends at some point if the current decline continues?

No. It's obsessed with (marginally...) increasing its dividend every year and it designs its portfolio around this by investing in companies that offer sustainable dividends. If you take a look at its annual report you might feel reassured:

https://cdn.janushenderson.com/webdocs/City+of+London+2023+Annual+Report+secured.pdf

coastline

MarcoM said:

I guess a simpleton question here would be, can anyone see this stop paying dividends at some point if the current decline continues?

CTY still at the top in this article.

The 8 investment trusts that have raised their dividend for more than 50 years | Trustnet

This article shows a chart of 2008 GFC where dividends were cut then recovered. 2020 pandemic again a drastic cut but at the end of the day the world closed down.

UK dividends: A bad 2020, but a better 2021? | Chase de Vere Medical

Things did recover from 2020 so I think both CTY and the FTSE will continue as expected.

The 10 stocks fueling the FTSE 100 dividend recovery | Trustnet

Good link and updated every quarter..

Dividend dashboard | AJ Bell

Prism

They can sell shares to fund the dividend if they need to so very unlikely to cut it. Might not go up by much though

Linton

MarcoM said:

I guess a simpleton question here would be, can anyone see this stop paying dividends at some point if the current decline continues?

Why should it?      As long as UK conpanies continue to pay decent dividends CTY will be fine.  Its share price is irrelevent to its day to day business.  You can look on CTY as behaving rather like a bond.  When income investors were able to get 5% with zero risk from bonds or savings accounts CTY as an income generator looked unattractive so its price dropped until its yield (dividend/price) was sufficiently high to be worth the extra risk.  The price says nothing about CTY's sustainability.

NedS

I hold a large chunk of CTY in my income portfolio. I'm not concerned with short term price movements - what I am concerned with is consistent long term quarterly income that rises with inflation over the long term.

Others have questioned recent increases in the dividend not currently matching inflation - again they are looking at the short term view. Look back over the last 10 or 20 years, and CTY dividend increases have beaten inflation, so those long term share holders are already ahead of the game and can expect inflation to catch up a little in periods such as this.

You need to ask yourself why are you buying CTY and what do you want it to achieve for you. I hold it for the stable long term income rising with inflation and some capital protection (inheritance for the kids). The alternative for my wife and I would be a 100% joint life inflation-linked annuity. At age 55, such a policy is likely paying less than 3% at best (I've not priced one, so just a finger in the air guess) and you are guaranteed to lose all your capital in exchange for that guaranteed inflation matched income. CTY is currently on a 5.4% forward yield (not guaranteed), and you will almost certainly get your capital back, it may even retain it's real value and has the potential of some small capital growth. That increase in yield over an annuity and protection of capital are the benefits you get for taking the increased risk. Even if the CTY dividend were frozen, it would take a long time for the annuity to catch up and afford the same income, and I'd still lose all my capital.

Oversold / crisis periods are when you want to add to your holdings (I built my holding during Covid and am now sat on an effective 6.2% yield and decent capital gain). Historically, now does not look a bad time to add more, but I think things still have the potential to fall more from here, so sitting on some cash at above 5% for the next 12 months doesn't seem a bad idea either. A target yield above 5.5% is probably worth aiming for.

The current risk free rate of 5.25% compares favourably in the short term, but we don't retire for the short term, and gilt or MMF rates will fall, not rise, when inflation falls and bank rates drop whilst CTY's dividend continues to grow, so again you are trading short term certainty for long term risk. So ask yourself where do you see inflation and interest rates for the next 10, 20 and 30 years? It's almost impossible to predict such things, so you spread your risks accordingly to cover all possibilities. My parents were quite happy getting 6% on their cash savings 20-30 years ago, but the last 15 years of their retirement has not been so great with near zero income even though they have taken zero risk, and now inflation is significantly diminished the value of their capital.

I would have been a lot better off now if I'd sold everything a year ago and put it all in a low risk MMF for 12 months, but again that's easy with short term hindsight and would not be a good strategy for the long term.

So for me CTY forms part of a balanced long term strategy, which includes inflation-linked income from SP and DB pensions, an income portfolio of stocks and shares and low risk cash investments. Each serve a purpose and help to spread risk whilst affording the income I will require in retirement.

tichtich

Linton said:

Prism said:

Linton said:

talexuser said:

ColdIron said:

It's not a suitable investment for total return, that's not its objective

Aye, but it wasn't even keeping up the capital.

For an income investor does that matter over the short/medium term?  Presumably City of London has not cut its dividend in £ terms.

It hasn't cut them but the increases haven't been good either, not even close to matching inflation. Its hands are tied as it generates dividends only from incoming dividends not capital. Some other trusts with lower starting yields have done better.  So over the short/medium term the income has not been great and neither has the capital gain.

Keeping up with inflation in the medium to short term seems elusive. Maybe only certain infrastructure trusts will manage it, but they don't need to distribute their income if they don't want to.

You should not expect dividends to suddenly increase with a step change in inflation.  It has to work its way through the companies business and finances to appear in the profits and hence eventually in dividends which will take some years.

I see no way to get income matching inflation in the short/medium term other than with an annuity.

Well, Greencoat UK Wind (UKW) has a policy of increasing its dividend in line with RPI every year. Of course this isn't guaranteed, but I believe it's done this every year so far, and its last report argued that even on very pessimistic assumptions it would be able to continue doing so for at least the next 5 years. It's able to do this because a large part of its revenue is from RPI-linked subsidies and guaranteed prices. In fact it's just announced an above-RPI increase for this year, which I'm personally not in favour of. As a conservative shareholder, I would have preferred it to reduce its debt.

This is not a recommendation, and I know most people here don't want to buy individual shares. Personally I have about 10% of my investment pot in UKW, my largest position.