Market Beat

The stock market has always been unpredictable, but unprecedented world events have made the market even more unpredictable during the last few years. Between the end of the 10-year bull run, the COVID-19 pandemic, unprecedented fiscal stimulus, wars overseas, and rising inflation, the idea of a normal market environment has all but disappeared.

The only thing that we can do is look at historical averages to see where today’s market fits in the grand scheme of things. The DOW is still trading over 30,000 and S&P 500 companies are trading at nearly 21 times their annual earnings, well above the historical average of 15 times earnings.

At the same time, we find ourselves in a rapidly changing interest rate environment. Fixed income investments have increased in yield in the last few years, but it’s hard to predict how long the Federal Reserve will keep rates elevated for. S&P 500 stocks continue to yield under 2% and some investors think it’s too challenging to find safe and affordable securities that pay 4%, 5%, and even 6% yields.

Searching for yield isn’t easy in an environment where historically high asset prices and stimulus from the Fed have driven down yields. This doesn’t leave many options for investors looking for retirement income or a decent dividend yield on their stocks, but there are a handful of cheap dividend stocks to buy that are still yielding 3%-6%.

3 steps to earning £100s in monthly passive income

The Motley Fool

Story by Paul Summers

Forget side hustles or buy-to-let property (both of which actually require a lot of puff and bother), I reckon the stock market is one of the few places for generating true passive income.

It’s not hard to get started either.

Step 1: Save…anything
Naturally, it’s necessary to have some money to invest in the first place. However, I’d wager that this is a lot less than most people think.

Setting aside £25 a week is a great start but, frankly, anything is better than nothing. I go as far as to say that the first step to earning a solid passive income from the stock market is achieved in the brain. It’s about accepting that the process is a marathon rather than a sprint.

What’s more, there are little ways of making this money go further. For example, taking advantage of a broker’s regular investing service drives down commission costs. Some platforms don’t charge anything at all.

Step 2: Seek out resilient dividend stocks
Having saved a small amount, it’s time to start buying.

But wait! I wouldn’t just snap up the first company that springs to mind.

Some appear to be offering monster dividend yields when, in reality, all that’s happened is that their share price has fallen (a company’s valuation and dividend yield are negatively correlated). This suggests the business is going through a ‘sticky patch’ or worse.

Guess what’s usually the first thing to be cut in such a situation?

This is why I generally look for companies that provide a service or products where demand tends to be fairly resilient.

For example, we all need food and drink and access to electricity. We also get sick occasionally. So, owning shares in firms like Tesco, National Grid, and GSK would make sense to me.
Nevertheless, no dividend stream can be guaranteed. For evidence of this, even some of the most ‘reliable’ stocks slashed their payouts during the early days of the pandemic.

However, having relatively stable earnings usually makes it quicker to recover from setbacks.

Of course, stock picking isn’t for everyone. So, an alternative for newbies is to buy an exchange-traded fund that tracks the FTSE 100 index. This means I’d own a minuscule part of each of the UK’s 100 biggest companies.

Spreading my money around in this way ensures I don’t need to worry when individual companies share prices yo-yo about. This safety-in-numbers approach also makes the dividends I receive from the fund even safer.

Step 3: Consistency is key
Once purchased via a broker (ideally in a tax-efficient Stocks and Shares ISA), the only thing left to do is sit back and wait for the passive income to arrive.

Most companies that pay dividends tend to divvy out the cash twice every year. However, some pay every three months.
Initially, we’re probably talking pennies rather than pounds. That’s fine – I can keep adding to my stocks when money becomes available. The more shares I own, the more in dividends I should receive. I can help things along by reinvesting whatever is received back into the market.

So, while generating hundreds of pounds a month in passive income from the stock market might seem impossible to begin with, it’s anything but.

Just add commitment and time.

Chucko is a very knowledgeable investor and as the current yield is 15% even when they start to cut their dividend there is plenty of room to keep above the desired 7% yield, so a strong portfolio hold as the position develops. Plus the cash returned can be re-invested in the Snowball.

chucko19 Apr ’24

Well, I am scratching my head a little! The leverage is stated as 0.27x in October and 0.15 x as of “now”. The October update states the leverage as 0.25x then, and the January 2024 update cites 0.10x. So I cannot determine the definition they are employing for this release.

Anyway, 5.12% of the 83.18p January NAV is 4.2588pps, and although that may appear to be small beer for a capital return, they have repaid half the debt (gearing facilities) and so we are likely to see some higher repayments in due course. From a value perspective, I am interested to observe the fall in SP upon this going ex-cap, and whether the theoretical increase in discount were the sp to fall by 4.25p offset by value investors (like myself) or ignored by those with more pressing concerns about whether or not to continue holding a liquidating IT.

Much more to travel on this one.

If u would like to own any of the above shares for their yield but do not have enough funds to spread the risk, one way of owning, as u wait for their share prices to rise, is to DYOR on AEI to re-invest the dividends, in whatever sector of the market that appeals to u.

Chart observations.

Price before the covid crash 420p dividend 20.5p yield 4.8%.

Price after the covid crash 210p the price halved so the dividend yield doubled. Squeaky bum time for the holders but not a time to sell. If u had sold during the crash, u could have bought back for the yield, which u should receive for as long as the Trust exists. But that is as they say is a story for a different day. If u study the chart, u will note that the price anchors just below the NAV value, so the price could increase to the NAV or vice versa. Whilst u wait for the outcome the current yield is 8%, which may remain until there are several rate cuts, which of course is not a given. Next xd date next month.

When I wrote the plan for the blog the initial yield target for the portfolio was 5%. As Investment Trust prices fell the yields rose so the current target for a blended yield is 7%.

7% is interesting because compounded it doubles your income in ten years which makes the concept easier to understand.

Investment Trusts as some have a long history of paying a gently increasing dividends as they have built up reserves within the Trust to smooth out any market crashes. They often trade at a discount to NAV as Trust prices reflects the balance from buyers and sellers, so not only can the dividends be re-invested, there is an opportunity to take profits by selling some Trusts to add to the Snowball

In fact with a dividend re-investment plan u can actually welcome falling share prices as u get more shares for your money and a higher yield.

The plan is to provide a ‘pension’ of between 14-16k, based on seed capital of 100k with no further funds to be added.

When u start to spend your dividends, u will need the portfolio shares to provide the dividends so they cannot be sold, so the value of the portfolio is of

no interest, although in time as more and more dividends are re-invested the total should also start to grow.

The plans total is not in doubt, but the timescale could slip although currently it is ahead of plan.

Also it may not be possible to add to the Snowball at a yield of 7% plus so again the timescale could slip, although there normally is a sector of Investment Trusts that is unloved.

Finally the rules for blog, there are only 2.

Buy Investment Trusts that pay a dividend to buy more Investment Trusts that pay a dividend.

If any Trust drastically alters its dividend policy the Trust must be sold

even at a loss.

Thursday 11 April

Amedeo Air Four Plus Ltd ex-dividend payment date
Balanced Commercial Property Trust Ltd ex-dividend payment date
BlackRock Latin American Investment Trust PLC ex-dividend payment date
Capital & Regional PLC ex-dividend payment date
CT Private Equity Trust PLC ex-dividend payment date
Downing Strategic Micro-Cap Investments Trust PLC ex-dividend payment date
F&C Investment Trust PLC ex-dividend payment date
International Personal Finance PLC ex-dividend payment date
International Public Partnerships Ltd ex-dividend payment date
JPMorgan Asia Growth & Income PLC ex-dividend payment date
JPMorgan Japan Small Cap Growth & Income PLC ex-dividend payment date
Lloyds Banking Group PLC ex-dividend payment date
Lowland Investment Cos PLC ex-dividend payment date
Luceco PLC ex-dividend payment date
Man Group PLC ex-dividend payment date
Manchester & London Investment Trust PLC ex-dividend payment date
Marble Point Loan Financing Ltd ex-dividend payment date
Mercantile Investment Trust PLC ex-dividend payment date
Mobius Investment Trust PLC ex-dividend payment date
North American Income Trust PLC ex-dividend payment date
Savills PLC ex-dividend payment date
Schroder Asian Total Return Investment Cos PLC ex-dividend payment date
Schroder European Real Estate Investment Trust PLC ex-dividend payment date
Supermarket Income REIT PLC ex-dividend payment date

VPC Specialty Lending Investments PLC

Initial Return of Capital through the B Share Scheme

Shareholders in VPC Specialty Lending Investments plc (the “Company“) approved the B Share Scheme at a general meeting of the Company held on 5 April 2024 (the “General Meeting“). Following that approval the Company is announcing an initial return of Capital via the B Share Scheme.  

The Company’s managed wind-down investment policy was approved by shareholders in June 2023. In the six months ending 31 March 2024, as indicated in the monthly updates, the Company has made progress in realising value both through debt repayments and the sale of equity securities, raising a total of approximately $58 million. As noted in the updates, these proceeds were applied in part to paydown the Company’s gearing facility which, over the same period, was reduced by approximately $41 million. These repayments have reduced the Company’s gearing to around $43 million, from $84 million as at 1 October 2023 and the gearing ratio has declined from 0.27x to 0.15x. Shareholders should note the gearing ratio could fluctuate as the Company progresses the managed wind-down.

After taking into account the contractually required reduction to the Company’s gearing facility as well as preserving liquidity for foreign exchange hedging and working capital requirements, the Board has decided to make an initial distribution to shareholders of $15 million, equivalent to approximately £11.9 million as at the date of release, through the issue and redemption of B Shares. The capital to be returned represents approximately 5.12 per cent. of the Company’s Net Asset Value as at 31 January 2024.

Pursuant to the authority received from shareholders at the General Meeting B Shares of 1 penny each will be paid up out of the reserves of the Company and issued to all Shareholders by way of a bonus issue pro-rata to their holding of Ordinary Shares held at the Record Date of 6p.m. on 18 April 2024. The B Shares will be issued on 19 April 2024 and redeemed at 1 penny per B Share. The Redemption Date in respect of this initial return of capital is 25 April 2024. The proceeds from the redemption of the B Shares will be sent to uncertificated Shareholders through CREST or via cheque to certificated Shareholders on or around 10 May 2024.

Shareholders are reminded that the issue of B Shares will not reduce the number of the Company’s ordinary shares in issue. However, following the issue and redemption of B Shares, the NAV (and NAV per ordinary share) will be reduced by the total amount of capital returned and the share price is likely to reflect the reduction in NAV. The pence per ordinary share amount of any dividends is therefore expected to reduce as a consequence of the reduction in NAV and, over time, through the changing composition of the portfolio.

The Company will continue to realise value from its debt and equity positions and will allocate the proceeds as between the repayment of the Company’s borrowings and further returns of capital using the B Share Scheme, and taking into account the foreign exchange and other working capital needs of the Company. We are not able to specify the timing and amount of future returns, which will continue to depend on the repayment of the Company’s debt assets as well as the sale of other securities. One of the advantages of the B Share Scheme is that now it is in place, returns of capital can be made to shareholders on a more cost-effective basis than through a tender offer. This would allow for smaller and potentially more frequent returns to be made.

Terms used and not defined in this announcement have the meanings given to them in the circular to the Company’s shareholders dated 15 March 2024.

Timetable

It is expected that the timetable will be as follows:

Record Date of initial return of capital	6 p.m. on 18 April 2024
Issue of Bonus shares	19 April 2024
Redemption Date of initial return of capital	25 April 2024
Payment date for CREST	10 May 2024
Dispatch of cheques in respect of certificated shareholders

Even with a Trust which is out favour, for whatever reason, usually has its day in the sun. U will be able to recognise this because as the price rises the yield falls, then it’s time to take some money off the table and re-invest in a higher yielder. If u had bought around the covid low u would have doubled your money, with dividends re-invested.

During the 2023 Santa rally, u could have taken out your capital and re-invested in another high yielder to grow the Snowball.

The Trust has been disappointing since but a great opportunity to start re-investing the dividends and do it all over again.

GRS