“The ECB is expected to follow the likes of Canada, Sweden and Switzerland by cutting rates later today, bringing the long-awaited pivot in monetary policy and signalling the start of a new era,” said AJ Bell’s Russ Mould.
“After a long period of rock-bottom rates, the subsequent period shocked markets to the core as interest rates soared amid high levels of inflation.
“We’re now beginning the next phase in the cycle where inflationary pressures ease and central banks move to a new playbook to help prop up a flagging economy and make life easier for consumers and businesses who have had to stomach sky-high borrowing costs.”
858 shares in this FTSE dividend star can make me an £11,056 annual second income.
This FTSE gem seems undervalued, appears set for strong growth and pays a big dividend yield that might make me a major second income over time.
Simon Watkins
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
Generating a second income gives us more choices in life – somewhere nicer to live, more exotic holidays, or an earlier retirement perhaps.
Better still is if this extra money can be made with very little effort. This can be done through investing in companies that pay high dividends.
One such firm I bought for this very purpose is Imperial Brands (LSE: IMB).
Should you invest £1,000 in Imperial Brands right now ?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
The FTSE 100 tobacco and nicotine products manufacturer has a solid history of paying high dividends.
Over the past four years, working back from 2022, it paid 7.6%, 8.9%, 10.1%, and 11.3%, respectively.
The total dividend payment for 2023 was 146.82p. This gives a yield of 7.4% based on the current share price of £19.80.
At this price, around £17,000 — the average UK savings account amount — would buy 858 shares in the firm.
The magic of dividend compounding
‘Dividend compounding’ is the same principle as compound interest, but rather than interest being reinvested, dividend payments are. The difference in returns between withdrawing dividends paid each year or reinvesting them is massive.
For example, my 7.4% dividend return on £17,000-worth of Imperial Brands shares would make me £1,258 in the first year. If I withdrew that, I would receive another £1,258 the following year, provided the dividend remained the same.
If I kept withdrawing my payouts and the dividend stayed the same, I would have made £12,580 in dividend payments after 10 years.
However, if I reinvested the dividends into Imperial Brands stock, I would have made an extra £18,550 instead.
This would mean £35,550 in total, paying £2,528 a year in dividends, or £211 a month.
After 30 years, it would be £155,461, paying me £11,056 a year in passive income, or £921 every month.
Can the high dividends be maintained?
Both a company’s dividend payouts and share price are powered by earnings and profits over time.
Imperial Brands, like other companies in the sector, is currently transitioning away from tobacco products and towards nicotine replacement ones. So, a primary risk here is that this transition falters, allowing its competitors to gain a market advantage.
However, the underlying business looks very strong to me. Its full-year 2023 results showed operating profit up 26.8% from 2022, to £3.4bn.
In H1 2024, its adjusted operating profit rose 2.8% year on year. Net revenue growth for its next-generation nicotine products increased 16.8% in the period.
Overall, consensus analysts’ estimates are that its earnings per share will rise by 5.9% a year to end-2026. Return on equity is forecast to be 47.9% by that point.
A potential bonus
I always try to buy stocks that look undervalued against their peers. First, because there is less chance of my dividend gains being wiped out by big, sustained share price losses. And second, because there is more chance I can make money on a share price rise over time as well.
Given its solid high dividend pedigree, its strong earnings forecasts, and its relative undervaluation, I will be adding to my holding soon
Scottish Mortgage Trust, which is particularly exposed to the Mag7 through the likes of Nvidia, Amazon and Tesla, continued to be the most popular investment trust in May. But the allure of tech exposure by no means attracted all comers, with Polar Capital Technology and Allianz Technology both dropping out of the top 10.
Elsewhere, trusts focused on renewable energy infrastructure also received renewed interest from “investment trust bargain hunters”, Caldwell said. Two of the three new top 10 entrants – NextEnergy Solar Fund and Gore Street Energy Storage – benefitted from this trend (private equity and infrastructure-focused 3i Group was the other new top 10 entrant).
He added: “Since interest rates started rising in late 2021 investors have been shunning the renewable energy infrastructure sector. Those rate rises have caused a re-pricing of valuations, which has harmed share prices. At the same time that interest rates rise, so do bond yields.
“As a result, income seekers now have more options and can take less risk as the safest types of bonds, UK and US government bonds, now offer yields of around 4% compared to virtually nothing when interest rates were at rock-bottom levels. However, it appears that some investors are now attempting to buy low in the hope that a recovery will play out.”
Caldwell also said investment trust discounts have been “widening”. He added: “With big discounts and big yields on offer, those investors buying today could argue they are being paid to wait for a change in fortunes. In terms of potential tailwinds, interest cuts would in theory be a positive, as this would likely cause bond yields to fall.”
Here are the top 10 investment trusts for May:
Scottish Mortgage (SMT) JP Morgan Global Growth & Income (JGGI) Greencoat UK Wind (UKW) Alliance Trust (ATST) City of London (CTY) NextEnergy Solar Fund (NESF) BlackRock World Mining (BRWM) 3i Group (iii) F&C Investment Trust (FCIT) Gore Street Energy Storage Fund (GSF)
JCH’s pure exposure puts it in a good position to benefit from renewed interest in UK stocks…
Kepler
Overview JPMorgan Claverhouse (JCH) has an intelligently assembled portfolio, offering a risk-conscious exposure to the UK equity market. Managers William Meadon and Callum Abbot are fundamental stock pickers, but as we discuss in the Portfolio section, they avoid making big binary bets on sectors or styles, instead aiming to deliver outperformance of the index in a steady, risk-controlled manner irrespective of market conditions.
The investment process, honed over many years, has delivered good returns over time. As we discuss in the Performance section, Will and Callum have outperformed in 66% of the quarters since Will took on the management of the trust in 2012. This consistency is echoed in the dividends that JCH has been able to pay over this time, and over a much longer period. Indeed, JCH has the longest track record of dividend increases of any trust investing solely in the UK at 51 years, putting it near the top of the leaderboard in the AIC Dividend Heroes list.
Will and Callum believe that the best way to continue to deliver progressive annual dividend increases is to grow JCH’s capital, as well as invest in companies with attractive dividend yields. They accept that no one can know what the future holds, so irrespective of how high their conviction is in one stock or sector, they aim to maintain a balanced portfolio that has growth and value characteristics. The team have a resolute focus on quality, rather than trying to invest in turnaround stories or companies that have highly leveraged balance sheets.
Discounts across the investment trust sector remain wide, and JCH has not been insulated from this. Given that in normal market conditions the board looks to repurchase shares at discounts wider than c. 5%, the current discount of 5.1% may have an element of protection from a further derating. With management fees having been reduced from mid-July 2023, the full effect of reducing the OCF has yet to be reflected in the official charges figure, which as we discuss in the Charges section, we estimate will fall to 0.65% next financial year.
Analyst’s View We share the managers’ view that this is an exciting time to be investing in UK companies, given the whole market is out of favour with domestic and international investors. The signs that valuations are attractive can be seen in takeover announcements and bids that are increasingly making the headlines. An early election offers the prospect of political certainty, and with interest rates likely having peaked it is hard not to argue that we may be entering a period where the wind is at the backs of UK equity investors. As we discuss in the Portfolio section, JCH has plenty of hallmarks that mean it is a good potential vehicle for investors to harness this opportunity, without making an outsized bet on any particular sector or investment style.
The strategy deployed by Will and Callum has worked well over the long term, particularly in delivering relatively steady quarterly outperformance. It is unfortunate that unforeseeable macro events have impacted their five-year performance numbers, but if we have a relatively benign period for equity markets, the trust’s Gearing and balanced approach to portfolio construction should allow JCH to claw back the marginal underperformance and start to show outperformance again.
JCH’s historical dividend yield at the time of writing is 4.7%, which compares to the peer group weighted average of 4.1% and the benchmark yield of 3.6%. The Board’s stated dividend policy is to seek to increase the dividend each year and, taking a run of years together, to increase dividends at a rate close to, or above, inflation. A high yield and a discount to NAV of 5.1% means shareholders are arguably in a good place to wait for the release of what the managers believe is the ‘coiled spring’ of UK equity markets.
Bull High-dividend yield, with a strong track record of dividend growth, backed by a deep revenue reserve Consistency of positive relative returns over long term Portfolio balanced between growth and value, with UK market looking attractive by international standards
Bear Gearing can exacerbate downside as much as amplify the upside Whilst the board is committed to buying back shares when the discount is wider than 5% in normal market conditions, there are no guarantees UK stock market may remain at a discount to other markets indefinitely
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If u are in the accumulation stage, u may wish to invest for growth as well as income. To achieve the current recommended yield of 7% it would have to be pair trade with a higher yielder. To be sure to be sure.
Schroder Real Estate Investment Trust (the “Company”) announces that the directors of the Company have declared a fourth interim dividend of 0.853 pence per share for the year ended 31 March 2024 on the ordinary shares of the Company.
The dividend payment will be made on 28 June 2024 to shareholders on the register at the record date of 14 June 2024. The ex-dividend date will be 13 June 2024.
The dividend of 0.853 pps will be wholly designated as an interim property income distribution (‘PID’).
UK Market Context
Since the recent UK real estate market cycle high of June 2022, average UK real estate values have fallen 25%, with the Company’s underlying portfolio value falling by 18% over the same period. This is a significant correction and compares with a 44% average market decline during the 2007 to 2009 global financial crisis (‘GFC’), and a 27% decline during the recession of the early 1990s.
Falling values and weak sentiment translated into a dearth of investment activity, with transactions in the final quarter of calendar year 2023 the lowest since the GFC. Furthermore, although debt levels in the real estate sector are low compared with the GFC period, lending for new acquisitions is the lowest since 2007 (Source: Bayes Business School). Low lending volumes also reflect the high cost of debt, with elevated interest rate swaps (five-year Sonia swap rate 4.1% as at 5 June) plus margin resulting in a total cost of approximately 6% for a good quality asset at a 40% loan to value ratio.
Given lower debt levels compared with past cycles, institutional investors are arguably more focused on the spread real estate offers over the risk-free rate, or the ten-year gilt. The MSCI Benchmark average net initial yield is now 5.2%, which compares with the net initial yield on the Company’s underlying portfolio of 6.1%. This is the highest MSCI Benchmark net initial yield since 2014 and represents a premium of 1.0% over the prevailing 10-year gilt rate of 4.2%.
This is below the long-term premium of approximately 1.5% to 2%, indicating a further increase in real estate yields, or a fall in gilt yields, might be required for the sector to represent ‘fair value’. However, this ignores the positive impact of rental growth on total returns, and in this respect the market is better placed now than in recent cyclical recoveries. For example, average nominal rents are now 6.6% higher than in June 2022, which compares with 3.4% lower over the equivalent 21-month period post-GFC. More materially, average industrial rents are now 12.9% higher than in June 2022, which compares with 0.1% post GFC. This performance illustrates both the structural factors that are driving demand for real estate in a market with relatively low levels of new supply, as well as the inflation-hedging quality of rental income.
Against this backdrop, market expectations that interest rates are peaking will be key to a recovery in sentiment towards real estate, together with increased availability of bank debt and reduced selling out of open-ended property funds.
The most significant and positive feature of the market is the above-average level of nominal rental growth, particularly for more structurally supported sectors such as industrial, retail warehousing, prime offices, and operational assets such as residential, self-storage and hotels. This rental growth, together with the potential for a future yield rerating, should going forward deliver total returns above the long run average, and lead to capital flows back to the sector. Our portfolio allocation and ongoing activity means we should be better placed to benefit from a recovery in sentiment.
(“SEEIT” or the “Company”) Interim Dividend Declaration
SDCL Energy Efficiency Income Trust plc is pleased to announce the fourth quarterly interim dividend in respect of the year ended 31 March 2024 of 1.56 pence per Ordinary Share, covered by net operational cash received from investments.
The shares will go ex-dividend on 13 June 2024 and the dividend will be paid on 28 June 2024 to shareholders on the register as at the close of business on 14 June 2024.
Pursuant to the Managed Wind-Down announced on 14 December 2023, the Company proposes to conduct an orderly realisation of its assets in a manner that seeks to optimise the value of the Company’s investments whilst progressively returning cash to shareholders. In particular:
· the Board expects that approximately £115 million would be returned to shareholders in the first half of 2024 at, or close to, NAV (subject to shareholder approval and the appropriate use of the Company’s distributable reserves) with further returns of cash to follow as value is realised from the Company’s private markets portfolio in a timely and efficient manner;
· approximately £107.3 million of the Company’s private markets portfolio (valued as at 30 November 2023) is expected to mature between 2024 and 2027 (the “First Tranche”). It is intended that the proceeds from the First Tranche will be returned to shareholders in a timely manner as the investments mature;
· the remaining £81.5 million of the private markets portfolio (valued as at 30 November 2023) is expected to mature between 2029 and 2033 (the “Second Tranche”). As market conditions improve, opportunistic secondary sales of Second Tranche assets would be considered by the Company in order to realise value from these assets in a timely manner;
10/01/24
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How much, if any, will have dropped out of the expected return ?
Current share price 82p NAV 107p capital £245.5 million
Disclaimer This is a non-independent marketing communication commissioned by abrdn. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Overview AEI is delivering a sector-leading yield, with low valuations offering strong capital growth potential…
Overview Manager of abrdn Equity Income Trust (AEI), Thomas Moore, aims to deliver three key goals: provide a high income, provide an income that grows over time, and provide capital growth. To achieve these goals, Thomas has considerable flexibility, allowing him to invest across the UK market cap spectrum with an index-agnostic approach. This allows him to find the best opportunities, that often trade at attractive valuations as they are overlooked by other investors (see Portfolio).
The trust is one of the highest yielders in the sector at 7.5%, and the dividends are fully covered by revenue. The manager believes this yield is solidly supported, and its future growth is assured by the diversified portfolio, including the small- and medium-sized companies, and strong underlying revenue growth. Looking forward, Thomas believes a turnaround in macro factors should begin to support a market recovery, with low valuations offering a lot of potential (see Performance).
Gearing is typically a structural element of the trust and has been used to support the high dividend. The current level is approximately in line with the trust’s neutral level to allow the portfolio to capitalise on the low valuations and support outperformance should the market rebound.
The trust’s Discount narrowed sharply in the past 12 months. The trust traded close to NAV for much of the past year which has enabled the board to issue shares and increase the size of the trust.
Analyst’s View Thomas has achieved his goal of delivering a very high yield, making AEI one of the best yielders in the sector and delivering a very competitive yield level from equities. He has also delivered another year of dividend growth, which the manager believes is well supported going forward by the underlying portfolio, including the benefits of a diversified portfolio such as holding small- and mid-caps (see Portfolio). We understand the dividend growth track record, currently 23 years, is likely to be a key focus of the manager and, in our view, the prospects for dividend growth are strong. We think for those seeking high-income generation from their equity holdings, AEI makes for a compelling offering .
In our opinion, the UK market is significantly undervalued, and this could lead to an improvement in capital returns from the trust. We understand this is now a focus for the manager with the income profile well supported. We believe the trust would benefit from a change in market sentiment, with one ‘bucket’ in the portfolio used specifically for identifying undervalued opportunities. We would expect the small and mid-cap bias to be supportive in any recovery as they typically perform better in rising markets. The differentiation these holdings provide could also help with relative performance.
Furthermore, the high level of structural Gearing could support the trust on the upside should sentiment improve. As such, we believe AEI would be a significant beneficiary of a turnaround in market sentiment and would be well-placed to capture a market rally.
Bull Very high covered yield that is delivering growth Differentiated portfolio including a bias to small and mid-caps Trust has recently reduced its charges
Bear Gearing is high which can amplify losses as well as supporting upside potential Value-tilted portfolio could struggle in a growth driven environment Small and mid-cap bias would likely struggle should a recession take hold
631p if u re-invested the dividends elsewhere. U haven’t made any progress since 2018 except u own more shares and if u re-invested the dividends u therefore receive more dividends without investing any more of your hard earned.
Top 10 holdings
9 year dividend history
Can trade on a very wide spread, so caution needed if/when trading.
