Investment Trust Dividends
If u look at the long term chart, similar to WB
and Coca Cola.
U have already received your buying price from dividends .
U have also earned a return of 300% on your investment and
despite the rollercoaster of the market u would have
slept soundly in your bed.
The recommendation is only for Investment trusts that pay a ‘secure’
dividend. On all current market information.
If we return to the LWDB chart
If u had bought at anytime adjacent to the arrow after the crash u
would have made money. If markets hadn’t recovered u would
still be receiving a yield of around 7% to re-invest in the market.
After 2022 it was more of a roller coaster although u would have
still received a yield of 4% which was above what was available
in MMF’s.
As always it’s all about timing and then time in, contrary to what
u have been told.
Maybe have a list of shares u would buy if/when there is a market crash.
U need to buy a yield u are comfortable with otherwise u will never make
the trade.
Trading is simple but not easy.
WB
Kepler
LWDB continues to set itself apart from peers in the sector by utilising its unique structure…
Overview
Law Debenture (LWDB) is a very differentiated proposition, and is unlike other investment trusts in the sector, largely down to its unique structure. It owns a portfolio of UK equities, managed by James Henderson and Laura Foll, and also operates as a leading provider of independent professional services (IPS). This structure allows the managers running the investment portfolio to better balance the requirement for immediate income with the potential for capital growth, given the IPS business funds over a third of the trust’s total dividends, owing to its steady and repeated revenues ). The IPS business continues to generate strong and growing revenues, the growth rate being 11.2% in the first half of 2023.
The combination of the investment portfolio and IPS business has led to a strong track record of outperformance against the sector and FTSE All-Share Index, over one, five and ten-year periods. James and Laura think the UK market offers incredible value currently. In their eyes, a wide pool of opportunities has opened to own cash generative businesses that are well-managed, resilient and positioned to deliver strong returns over the long-term. With UK equities sitting at historically low valuations, including close to a three-decade low against global equities, they believe there is no shortage of market leading, high-quality, and undervalued companies to exploit, so have added investments they feel hold the potential to re-rate quickly when sentiment returns and markets rally, including Rolls-Royce.
At the time of writing, LWDB’s historical yield is 3.8%. While lower than some peers, the board has a record of maintaining or increasing the dividend for shareholders over the last 44 years.
Analyst’s View
We believe that LWDB is a good way for investors to generate dividends from the UK market in a less conventional way compared to peers. Its unique structure, a blend of an investment portfolio and independent professional services (IPS) business, means it has more flexibility to attack different parts of the market typically avoided by other income portfolios. The nature of IPS’s businesses make , a level of contribution that we think is key to the overall LWDB strategy. Not having to focus purely on a strong income, the managers running the investment portfolio can pursue a more diverse range of opportunities including companies that boast lower yields, but greater return potential. In our view, this flexibility is invaluable in the current market environment, and something that’s also contributed to strong dividend growth and outperformance over time .
IPS has demonstrated defensiveness in times of market stress or throughout recessions, which we view as another strong benefit to LWDB. That said, we would argue that given some changes to IPS’s underlying businesses more recently, the mix has become less defensive and more cyclical. Being more exposed to global economic factors and having more cyclicality risk than in the past, could mean, in our opinion, revenues are slightly less defensive in periods of prolonged market stress or recessions. All in all, though, we think the IPS business continues to have good anticyclical businesses and dovetails nicely with the investment portfolio, providing good access for investors looking for well-diversified exposure to the UK.
We travel back to the Covid crash, u want to buy MRCH because u know
that Investment Trusts have built up reserves to ensure dividends can be
paid in times of stress.
U were lucky/clever and bought at 300p.
When the share double u could have taken out your stake
and re-invested in another high yielder.
The buying yield was around 8% but the running yield is now 5%.
For ease I will assume u bought 10k of shares and exclude costs
for the example.
Today u would have 10k of cash or re-invested.
Dividends up to the sale of £2,729
Dividends since the sale £459.00
Current shares value £9,000
yielding 5% which sits in your account at a
cost of zero, zilch, nothing.
Total £22,179.00
Fingers crossed for another market crash.
Trust Intelligence from Kepler Partners
Fund flows and discounts may shed some light on a once-in-a-generation opportunity…
Nicholas Todd
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
We think 2024 is starting with a new sense of optimism in the air, as the prospect of easing macroeconomic conditions is on the horizon. Last year was a difficult one for many investors, at least until the fourth-quarter rally. Rising interest rates created incentives to shift into cash, and this led to a significant widening of discounts on investment trusts. However, markets performed strongly at the end of the year. With expectations rising for rate cuts sooner rather than later, and any recessionary forces looking weak, the picture for financial assets is arguably brighter than it was last January.
Here we look at how investors responded to the uncertainty enveloping markets in 2023 by analysing the evolution of asset flows. We set out to see how open-ended fund flows compared to discount moves in the closed-ended universe, and where the sector stands. We think the analysis highlights some potential opportunities in cheap sectors.
Investment Association (IA) data on fund flows is only available up to the end of October. This is actually a pretty useful period to look at, as in the last couple of months of 2023 markets rebounded quite significantly. Up until this point, the data paints a bleak picture for the majority of IA sectors with retail and institutional investors redeeming £37bn over this time. As the table below shows, the UK All Companies and Europe (ex. UK) sectors experienced the most significant outflows over the period in absolute terms, with outflows of £9.2bn and £2bn respectively. This equated to 6.5% and 3.5% of funds under management (FUM) in the sectors at the start of 2023. As a percentage of FUM, the worst-hit sectors were healthcare and financials and financial innovation. Very few sectors saw net inflows, notably the global and global equity income sectors.
| IA SECTOR | TOTAL ASSET FLOW JAN 23 – OCT 23 (£M) | TOTAL FUM OCT 23 (£BN) | % CHANGE FROM START OF 2023 |
| UK All Companies | -9,179 | 131.7 | -6.5 |
| Europe excluding UK | -1,966 | 55 | -3.5 |
| UK Equity Income | -1,889 | 33.6 | -5.3 |
| UK Smaller Companies | -878 | 9.2 | -8.7 |
| Healthcare | -763 | 24.6 | -2.9 |
| Specialist (equity) | -735 | 24.6 | -2.9 |
| North America | -618 | 81.7 | -0.8 |
| Financials and Financial Innovation | -383 | 2.3 | -14.3 |
| Global Emerging Markets | -336 | 32.2 | -1.0 |
| European Smaller Companies | -210 | 1.7 | -11.0 |
| China/Greater China | -178 | 2 | -8.2 |
| European including UK | -45 | 2.7 | -1.6 |
| Asia Pacific including Japan | -42 | 0.8 | -5.0 |
| Japanese Smaller Companies | -40 | – | – |
| Latin America | -28 | 0.3 | -8.5 |
| North American Smaller Companies | -5 | 4 | -0.1 |
| Technology and Technology Innovation | 25 | 7.1 | 0.4 |
| Asia Pacific excluding Japan | 124 | 32.2 | 0.4 |
| India/Indian Subcontinent | 152 | 4.2 | 3.8 |
| Japan | 271 | 21.8 | 1.3 |
| Global Equity Income | 774 | 22.2 | 3.6 |
| Global | 814 | 163.2 | 0.5 |
| Unclassified Sector | 1,406 | – | – |
Source: Investment Association, Kepler calculations, as of 31/10/2023
We think much of this likely came from the UK sectors, all of which experienced significant outflows from retail investors. A lot of this we would attribute to the sharp rise in interest rates used to combat inflation. High rates on virtually risk-free cash and short-term bonds were tempting, particularly as fears of a significant recession persisted through the year. However, negativity about the UK’s prospects was pretty extreme throughout the year, and we think many investors will have looked to the global sectors instead. Although it is reflected in the outflows of the UK All Companies sector the impact has been felt hardest in the UK Smaller Companies sector, with assets down over 8%. We would argue that funds have been caught up in this trade with little regard for the strength of their portfolios. The extent to which the UK has been out of favour is shown through total outflows which didn’t show any sign of easing through the course of the year—a total of £11.9bn. To put this into perspective, the second greatest outflows came from European equities which if we include smaller companies experienced just over £2.2bn of outflows.
European equities faced another challenging year with higher energy prices and supply chain constraints adding to a tough macroeconomic backdrop. The sector experienced the worst outflows in over a year during September and October 2023. As with the UK, the smaller companies sector was hit hardest with outflows equating to 11% of FUM at the start of the year. Overall, it has been unsurprising that investors moved away from more volatile assets with greater interest rate sensitivity, such as equities and property into more secure fixed income and money market products offering higher yield than medium- or long-term bonds (upwards of 5% risk-free), as highlighted in the table below. Alternative investments also suffered as a consequence of rising interest rates and rising costs of debt. This has been true, particularly for commercial property, which has continued to suffer from the persistent impact of hybrid working.
| ASSET CLASS | TOTAL ASSET FLOW JAN 23 – OCT 23 (£M) |
| Mixed Asset (excl. Flexible Investment and unallocated) | -4,219 |
| Equity | -3,678 |
| Flexible Investment | -1,422 |
| Property | -460 |
| Others | 220 |
| Money Markets | 1,107 |
| Fixed Income | 4,537 |
Source: Investment Association, Kepler calculations, as of 31/10/2023
Global Emerging Markets experienced strong inflows in the first half of the year. However, this reverted to outflows in the second half of the year. We believe this reflects investors looking to play a China reopening which disappointed, and then selling when the story changed. China faces a number of headwinds: regulatory uncertainties and the potential threats of government interventions along with elevated levels of geopolitical tensions are issues. Combined with the impact of de-globalisation and reshoring of manufacturing and the continued focus on sustainability this is having a negative impact on sentiment. The opposite is true with India. Since March 2023, the sector has experienced month-on-month inflows as investors look to the country’s growth story, driven digital transformation, the proactive approach taken by the government, its deep domestic capital market, and the ever-growing middle class.
The picture of outflows at the top level is mirrored in widening discounts in the investment trust space. After 2022 which saw discounts widen from 2.2% to 11.8%, by 30/10/2023 they had moved out further to 17.3%—the widest level since the global financial crisis. We believe this may have presented a great opportunity for long-term investors—particularly in the hardest-hit sectors.
At the sector level, there were some similar patterns to the asset flows of their open-ended equivalents. The UK All Companies and UK Smaller Companies sectors saw their discounts widen from 10.2% to c. 14% as of October 2023. This has come despite many trusts delivering positive NAV returns. This includes ASL, THRG and JMI which have delivered a return of 8.2%, 6.8%, and 7.5% respectively compared to 0.4% generated by the FTSE All-Share over 2023. In addition, China-focussed strategies discounts have also widened from 9.5% to c. 14% during the year—wider than that seen by global emerging markets trusts which will have a less concentrated allocation to China.
The significant outflows from interest rate sensitive, debt-heavy sectors such as property, have been replicated in the widening of discounts across the closed-ended infrastructure and renewable energy infrastructure sectors over the year. In a similar vein to smaller companies, we believe there are opportunities for investors that can identify higher-quality investment opportunities within these sectors including3IN) and Pantheon Infrastructure (PINT) which have delivered NAV returns of 11.6% and 9.9% over the year but are trading at discounts of 9.4% and 20.5% respectively. This is in addition to renewable energy infrastructure strategies such as UKW which is trading on a 10% discount and offers a high dividend yield linked to UK RPI.
However, some strategies have bucked the trend. For example, the global equity income sector has reflected the stability in terms of open-ended asset flows with its more stable discount, thanks to trusts such as IVPG, and JGGI. However, the UK equity income sector has also managed to maintain a relatively stable discount averaging 3.6% despite experiencing the third worst sector outflows over the year. We believe this reflects the higher demand for income strategies that provide higher dividends with revenue reserves providing longer-term security, alongside capital growth which can be boosted by gearing.
We also note that the open-ended India sector saw consistent inflows of assets over 2023, however, the closed-ended sector has only seen the discount come in to 11.1% compared to 13.5% at the start of the year. Only one trust currently trades at a premium in the sector AIE. The larger trusts in the sector have seen disappointing performance in recent years, which we believe has weighed on the discount. However, this provides an opportunity, particularly if active performance turns around. Indeed, Nick Greenwood, manager of MIGO and now part of the Asset Value Investors stable, flags JII as interesting in this regard. There is a new management team in charge, and tender offers are on the horizon. Finally, whilst there were inflows into open-ended tech funds in the second half of 2023, the discount of the AIC technology and technology innovation sector has remained stubbornly wide, at 10%. Given the long-term structural supports for the tech sector, we think this is a striking opportunity to gain exposure to some of the world’s most innovative companies through trusts such as ATT
Source: Morningstar
As mentioned above, October 2023 marked a turning point in markets where slowing inflation has led to a broad-based rally with the S&P 500 generating a return of 12.2%, and bonds represented by the iShares Government/Credit Bond ETF generating 7.9% as of 31/12/2023. This included a recovery in some more interest rate sensitive growth areas of the market. Even though Fed chair, Jerome Powell, said the central bank was “not thinking about rate cuts right now”, investors have shown some signs of cautious optimism. November Fund flows data from Calastone showed that a less uncertain market environment prompted a cautious return to inflows for some sectors adding back around 10% of the £4.54bn in outflows seen across a six-month period of net selling. This included flows into emerging markets, North America, and global mandates, whilst a sustained decline in bond yields saw an increased flow of capital into fixed income. That said, investors remain cautious and money market funds saw double the inflows to fixed income in November. In addition, infrastructure, Asia Pacific, Europe, and the UK continued to see outflows, albeit at a less severe pace.
This is also reflected in the quick narrowing of discounts of certain sectors, narrowing the average of the universe to 14.8%. This has been particularly evident in the interest rate sensitive areas of the market such as infrastructure sectors and the commercial, logistics, and healthcare property sectors which have effectively halved their discounts from c. 30% to 18%—we also note that logistics and healthcare traded at a premium pre-Q2 2022. Similarly, the discounts in the private equity sector (excl. 3i) have also narrowed since then to 28.6% versus 40% at the end of March 2023. In addition, there has been a slight narrowing of the UK and North American smaller companies sectors however, they still trade on a 10% and 9% discount respectively.
Investors have taken 2023 as an opportunity to re-evaluate their investment portfolios and take money out of riskier areas of the market as higher rates of return have been offered by a more diverse range of assets. However, we think the fact that the discounts across some of these sectors are beginning to narrow, may reflect the beginning of a shift in investor sentiment. Interestingly, this initial move has come from sectors yet to see inflows recover. We think this may suggest we could be coming out of a period of overdone selling pressure, which over the near term may provide an opportune entry point for investors to gain a powerful addition to returns through NAV upside and the narrowing of discounted investment trusts. When veteran trust of trust portfolio managers Nick Greenwood, MIGO, and Peter Hewitt, CT Managed Growth have both noted that the level of investment trust discounts may present a ‘once-in-a-generation opportunity’, who are we to argue with that?
Motley Fool
However, one aspect that I find impressive is the dividend growth of his stocks. This is often overlooked because it is happening gradually over years and is therefore not as eye-catching. But those annual returns soon start to compound and produce amazing results.
So, if I had £10k in excess savings today, here’s why I’d consider investing in dividend growth stocks.
Coca-Cola
Buffett completed his purchase of Coca-Cola shares in the 1990s after accumulating them for several years.
They cost $1.3bn, which was a huge sum for Berkshire back then. However, after receiving 30+ years of rising dividends from the soda behemoth, Buffett’s firm was set to earn $736m in dividends last year.
Up from just $75m in 1994!
The dividend yield on Coke shares today is 3%. For Buffett, the annualised yield on cost is currently 57% (and growing). This lays bare the incredible power of long-term investing.
Current fcast £2,226.00 which is ahead of target
for the year.
Current dividends received £1,089.00.
With investing u fail by the day not the year.
Slim’s out of town ?
Slim Pickings.
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