The impact of inflation - yikes!

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82109261#Comment_82109261

If you want to see that in a chart look at HFEL which has very high dividend yield (currently over 9%). Over the last five years it is down 12% in nominal terms (more in real terms) - so the dividends could be said to be eating the capital. Of course during that time savings interest rates have gone up so maybe what happened to gilts happened to HFEL. Its price is now rising!

SouthCoastBoy

I reinvest all dividends either through dividend re investment or accumulation funds, that way I'm hoping for more growth. I have a 5 year cash buffer in my sipp and another 10 years of cash in isa. Hopefully that way I should be immune to any stock market crash. I may invest some of the isa cash in equities at so.e point over the next 10 years depending what happens to markets.

I'm going to start taking the cash from my sipp in the next tax year.

I am well aware equities could fall or not rise for a long period of time, for examp the ftse 100 high of 1999 was not beaten until 2014.

I fully expect to decumulate my investments over my retirement as long as I live long enough.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82109288#Comment_82109288

I thought at least from limited info I’ve seen is that a total portfolio approach (sell stuff) the success rate is higher as dividend stocks tend to be less diversified - you’re limiting your spread to companies with a high dividend payout; and that their growth is lower

tichtich

https://forums.moneysavingexpert.com/discussion/comment/82109261#Comment_82109261

There's a lot to unpack there. Let's just say that overall (averaging over all stocks and very long periods of time) I wouldn't expect dividend stocks to beat growth stocks in total returns (dividends plus share price increases). Some time ago I heard the results of a study that found that dividend stocks had slightly underperformed growth stocks over the very long term. (No doubt this will depend on the time period, the universe of stocks under consideration, and how you define "growth" and "dividend" stocks.) So, on that basis, the dividend stocks must have sacrificed slightly more in share price appreciation than they paid out in dividends.

However, I'm not talking about a general purpose investment strategy. I'm talking specifically about a strategy for a retiree who needs to draw an income from his portfolio, is faced with (IMO) currently high stock prices (especially for growth stocks) and is afraid of having to sell stocks for income after prices have fallen from the current high level. Being forced to sell stocks at a possibly bad time changes the calculus.

tichtich

Funny you should mention HFEL, as I was considering it recently, but haven't bought any and probably won't. I believe that HFEL's "natural" dividend yield, based on paying out dividends from stocks in its portfolio, would only be about 4% (more like 3% after subtracting the fund's charges). Although it owns some high dividend stocks, others are medium to low. In fact, some of its biggest holdings, like TSMC, have very low dividends. HFEL makes up the remainder of its 9% yield by selling covered call options. So I don't think it's representative of managed funds that simply choose higher dividend stocks. I don't own any of those either, though I'm open to doing so. I'm more wary of high-dividend passive ETFs, as I'm afraid their investment formula might put too much emphasis on current dividend yield at the expense of long term dividend yield.

Linton

https://forums.moneysavingexpert.com/discussion/comment/82109288#Comment_82109288

In the last 12 months I had a 6.1% yield and in the previous 12 months 6.5%. The total incomes in £s were very close but prices have risen a bit over the past 2 years

My portfolio is :

Investment	% allocation
AEW UK Reit	8.77
CT Emerging Markets Bond Ins Inc	6.79
European Assets Trust	8.99
GCP Infrastructure	6.55
Janus Henderson Asian Dividend Income I Inc	13.18
MAN GLG UK Income Prof D Inc	21.78
Schroder High Yield Opp Z Inc	14.89
Schroder US equity income maximiser Z Dis	10.50
Sequoia economic infrastructure	8.56

Note that European Assets Trust has now been merged into European Small Companies Trust, but the high dividend strategy remains the same.

I feel this % income is about as high as I would want to go whilst still maintaining diversification and keeping the risk within reasonable bounds. That is risk to the income; what happens to the market price is irrelevent since there is no intention to ever sell.

tichtich

https://forums.moneysavingexpert.com/discussion/comment/82109478#Comment_82109478

Thanks for posting your list of investments. I'll take a look at some of those, as I have some cash to allocate. Here's mine:

Ticker	Name	% of Portfolio	Yield
CAML	Central Asia Metals PLC	3.12%	7.99%
CSN	Chesnara Plc	20.32%	6.92%
ERNS	iShares Ultrashort Bond UCITS ETF GBP (Dist)	9.33%	4.27%
IBZL	iShares MSCI Brazil UCITS ETF USD (Dist)	5.99%	3.94%
LGEN	Legal & General Group Plc	21.90%	7.59%
MLPP	Invesco Morningstar US En Infra MLP UCITS ETF Dist	11.18%	7.31%
SEIT	SDCL Efficiency Income Trust PLC	3.70%	0.00%
SHPP	Tufton Assets Ltd	12.89%	7.62%
VIP	Value and Indexed Property IncomTrstPLC	11.56%	6.79%

Overall yield is about 6.5%. A bit lower than I said earlier, as prices have risen. That includes ERNS, which is a near cash equivalent that I aim to deploy into equities when I find something that suits me. I also have some index-linked bonds that are in a separate pot and not listed here. That pot could also be deployed into equities, if there's a significant correction in stock prices.

MK62

https://forums.moneysavingexpert.com/discussion/comment/82109100#Comment_82109100

I get that you'd want to exclude "outliers"…….but the top and bottom deciles account for around 5 million adults in each of those income deciles, not just a few thousand…….

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/82108936#Comment_82108936

An International index such as MSCI world might outperform UK equities (as it has over the last 26 years) or it might not (as it hasn't for a start date of 1972; the UK really outperformed in the 1980s and 90s). IMV, it is not necessarily the exact values that come out of such an analysis, e.g., for US-based investors the worst cases are -4.0% and 1.1% over 10 and 20 years, respectively), but the possibility that returns may be lower than many expect (FWIW, as a worst case, I usually use 0% real since calculations are then trivial!). Of course, sequence of returns can also make things worse.

Agreed that guaranteed income from SP, inflation protected DB pension, RPI annuity, and/or collapsing ILG ladders (for those who don't want to hand over a premium to an insurance company) takes some of the worry out of relying on income from a risk portfolio.

AFAIK, there has been very little numerical analysis done on the difference between total return and natural yield strategies. The only one I'm aware of is at https://finalytiq.co.uk/natural-yield-totally-bonkers-retirement-income-strategy/ - note that I disagree with the use of the word 'bonkers' and also note that the study is limited to a broad equity index and long nominal gilts rather than, for example, investment trusts or dividend focussed or high yield indices.

michaels

Efficient markets (hypothesis) would imply that choosing an asset class with lower volatility (which I assume is the rationale claimed for higher yield investments) would see lower average returns. Should be no such thing as a free lunch.