The blog ‘s plan is to invest 100k of seed capital in a portfolio of Investment Trusts that pay a dividend.

Now u may not have a spare 100k laying around and if u do u may not want to commit that amount of money.

The blog portfolio intends to earn a ‘pension’ of between 14 and 16k within ten years, currently year 2 where the portfolio is ahead of target.

No new funds will be added to the portfolio but u may be willing to add funds as the portfolio achieves it’s yearly fcast.

As interest rates fall, let’s assume when u want to take an income from your investments an annuity is available at 4%.

U would need to increase your 100k of seed capital to 400k and surrender all your capital for the privilege.

GL with that if that’s your chosen option.

I forgot to mention that the blog portfolio whilst providing a ‘pension’ u will also have all your capital to withdraw, if your circumstances change.

I’ll do a review of the portfolio, the fcast and the target at the end of the first quarter this weekend.

Current cash to re-invest £830.00, with a further £470 to be added to the Snowball tomorrow.

4.83p would be nice but I am going to use 4.1p for the plan and that may still be trimmed.

The share has fallen down to a support area.

The options.

U can buy for the 8.8% yield hoping that support holds, knowing that u have bought at a better price than those catching a falling knife.

The thread price is 92.7p including charges, that’s the risk, the further u trade away from a support area.

U can watch to see if it continues to fall, with the fall back position that u could buy lower down or if it trades back up thru support.

U can wait and if it bounces buy, accepting a slightly lower yield.

U could buy something else.

The glorious uncertainty of share trading.

The Motley Fool

Simon Watkins

£0 in savings? Here’s how I’d turn that into £7,895 a month of passive income
Passive income is money earned from minimal daily effort.

And anyone with an income can make it and then turn it into a sizeable investment pot, in my view.

The way I did it initially was to invest around 20% of whatever I earned into shares that paid dividends.

The current median average salary in the UK is £34,963 a year, so after taxes it would leave £28,245. This is around £2,354 a month, so 20% of that is about £471 a month.

Big things have small beginnings
Using the UK average salary example, £471 a month could be invested into one of several high-dividend-paying FTSE 100 stocks.
British American Tobacco (LSE: BATS), for example, pays a 9.75% dividend currently and is part of my own high-yield portfolio.

Just £471 invested monthly in this stock could produce a £97,129 investment pot after 10 years. This would pay £8,744 a year in dividends, or £729 a month!

This is on two provisos. First, the yield averaged the same (it could be less, or more, as dividend payouts and share prices change).

And second, the dividends paid out are reinvested back into the stock – known as ‘dividend compounding’. This is the same process as leaving interest paid in a bank account to grow over time.

On the same two provisos, this £471 a month over 30 years could grow into £1,026,427. This would pay £94,742 in dividend yield a year, or £7,895 a month!

How to choose the stocks
In my case, three factors are key in stock selection.

First, it needs a yield of at least 7% — but the higher the better, provided the stock quality remains good.

Second, its shares should appear to me to be undervalued against their peers, using various financial measurements. British American Tobacco, for instance, is currently trading on the key price-to-earnings (P/E) ratio at just 6.1. This compares to a peer group average of 7.8, so it looks undervalued to me.

Additionally, a discounted cash flow analysis shows the stock to be around 55% undervalued at its present price of £23.70. Therefore, a fair value would be around £52.67, but this does not necessarily mean it will ever reach that level.
The third key factor in my stock selection is how the core business looks. In British American Tobacco’s case, it is transitioning away from tobacco products and towards non-combustible nicotine products, such as vapes.

So far, this appears to be going well. Its 2023 results showed adjusted profit from operations rose 3.1% in 2023 from 2022 – to £12.47bn. Analysts’ expectations are that its earnings and EPS will rise respectively by 71% and 65.1% a year to end-2026.

There are risks for me to monitor, of course. One is that its business transition is delayed for some reason. Another is any litigation from the effects of its products in the past.

This said, over time everyone will develop their own methodology for choosing stocks that are right for their investment portfolio.

Ultimately, though, good choices, regular investment and dividend compounding are all that are required to make significant passive income over time, in my experience.

Thursday 28 March

BlackRock Energy & Resources Inc Trust PLC ex-dividend payment date
BlackRock Sustainable American Income Trust PLC ex-dividend payment date
Value & Indexed Property Income Trust PLC ex-dividend payment date

Belt and braces, many Trusts the ship sailed a while ago.

The SC Trust should in the long run should offer a capital gain

so could be pair traded with, say a Renewable Trust for an enhanced yield.

Features

Don’t stop believing

Why the UK small-cap sector is ready to shake off its shackles after a tough few years…

Jo Groves

Updated 20 Mar 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BlackRock Smaller Companies. 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.

Legendary investor Warren Buffett shared these pearls of wisdom for investors: “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” It would be fair to say that UK equity funds have been languishing in the unpopular category for some time, having suffered a consecutive 32 months of net outflows as investors gravitated to the glitz of the magnificent seven.

However, the variation in investor appetite extends beyond a simple UK-US divide, with an additional divergence in the fortunes of small and large-cap stocks over the past few years. Fears of ‘higher for longer’ interest rates have weighed on small-cap valuations across the board, with a torpid domestic economy further adding to the woes of UK equities.

However, with macroeconomic issues beginning to ease, contrarian investors may see current valuations as a highly attractive opportunity to position their portfolio for a potential recovery in UK small-caps.

A track record of outperformance

Despite the current downturn, small-caps have outperformed their larger-cap counterparts over the long term. The stellar returns from the US mega-caps may have dominated the financial press of late but the chart below shows that investors would have made higher returns from the (UK-based) Numis Smaller Companies Index over the last 25 years than the S&P 500.

RETURNS BY INDEX

Source: FEAnalytics (as at 17/03/2024)

There are several reasons behind this outperformance: UK small-caps can offer superior earnings growth, the sector boasts a broad investable universe and limited analyst coverage can lead to pricing inefficiencies. Many UK small-caps also derive a significant proportion of revenue from overseas, making them less dependent on the domestic economy, coupled with robust balance sheets to weather an economic downturn.

In addition, UK small-caps have historically performed particularly well after a period of under-performance, and the current downturn has been longer and deeper than the stock market crashes of the Global Financial Crisis and bursting of the dot.com bubble. A recent note by my colleague showed that, since 1955, every time the Numis Smaller Companies Index had a negative (calendar) year, it has been followed by positive returns for the following three years, with an average return of 84%.

As a consequence, investors will be focusing on the catalysts needed to precipitate the long-awaited recovery in the sector. One such catalyst could be a narrowing of the disconnect between investor sentiment and company fundamentals. Roland Arnold, portfolio manager of BlackRock Smaller Companies (BRSC), remarked in a recent note: “Many smaller companies have enhanced their competitive position, strengthened their balance sheets and continued to generate volume growth in sales, but this has not been reflected in share prices.”

Another tailwind could be the green shoots of an improving macroeconomic environment for the year ahead. The risk of recession has been baked into UK equities for some time and it was notable that the major UK indices rose on recent news of the UK entering a recession. Looking ahead, the OECD currently forecasts that the UK will have the fourth-highest GDP growth amongst the G7 economies in 2024, above the average for the Eurozone, France and Germany.

Attractive valuations

Small-caps valuations tend to be hit harder than large-caps during periods of rising interest rates and elevated volatility. The steep base rate hikes in the UK have taken their toll on the valuations of higher-growth companies, with investors seeking sanctuary in lower-risk assets.

This has proved a double whammy for the UK small-cap sector, which is currently trading at a steep discount to both large-caps and its global peers. As shown in the chart below, the MSCI UK Small-Cap Index is trading at a discount of 70% and 44% to the MSCI USA and World Small-Cap indices respectively.

While investors may have been eschewing the attractive valuations on offer in the listed market, UK public and private companies have been firmly on the menu for strategic buyers over the last five years. There were more than 3,600 M&A transactions in 2023, according to PwC, with strong interest from overseas buyers helped by the strength of the US dollar against the pound.. One such example in the listed market is the £410 million acquisition of UK-based investment bank Numis, a BRSC portfolio company, by Deutsche Bank in 2023.

Private equity firms are also sitting on a record $3 trillion of dry powder and bids for portfolio companies by financial buyers have boosted returns for BRSC. The trust’s latest target was Ten Entertainment, a UK bowling alley operator, with US private equity firm Trive Capital paying £287 million for the company, a 33% premium (to the closing share price prior to the announcement). On a similar note, UK private equity firm Inflexion paid £434 million to acquire a 40% stake in BRSC portfolio company GlobalData to fund organic growth and further acquisitions.

Dividend hero status

The dividend stream offered by many of the FTSE 100 large-caps is widely appreciated, but this quality is often overlooked for smaller-cap companies. The MSCI UK Small-Cap Index offers a yield of 3.6%, comfortably above the 2.1% average yield for its global equivalent and not far below the 4.2% yield for the UK large-cap index (as at 29/02/2024).

BRSC is a newly-minted ‘dividend hero’, an accolade given by the AIC to investment trusts that have consistently increased their dividends for 20 consecutive years. Roland seeks companies with strong cashflow generation, rather than the highest-yielding options, but the current yield of 3% (as at 15/03/2024) can diversify returns beyond capital growth alone and the dividend is typically fully-covered.

Investing in UK smaller companies can be higher-risk than their larger-cap peers, however, an improving economic outlook and hoped-for interest rate cuts could prompt a re-rating of the sector. If this is the case, BRSC’s focus on market-leading companies with strong balance sheets should position it to benefit from a recovery in the UK small-cap sector.