Investment Trust Dividends
City of London Investment Trust currently pays a yield of 4.85%, so is not in the current blog portfolio. If anyone wants to receive a ‘secure’ dividend it could be paired with a higher yielder to provide a higher level of security and retain a blended yield of 7%. CTY should be in your watch list for when the next market crash occurs.
But as always best to DYOR.
Why only Investment Trusts ?
CTY has an unmatched record of delivering consecutive years of dividend growth, now having reached 57 years. This is the longest continuous period of any investment trust and means CTY is top of the AIC’s ‘Dividend Heroes’ list. This is not to say that underlying earnings have increased each and every year.
Investment trusts have the ability to retain up to 15% of each year’s income in reserve and use this reserve in future years to smooth dividends if revenues subsequently fall. One such year was 2020, with many portfolio holdings cutting or passing on dividend payments in the face of the economic shock brought on by the COVID-19 pandemic. CTY was able to continue to pay an ever-increased level of dividends through the crisis, allowing earnings to catch back up again with the dividend by 2022 when the dividend was once again covered. CTY’s dividend was marginally covered in 2023. Total revenues over the first half of the current financial year, which ends in June 2024 were up, but earnings per share only increased marginally thanks to the short-term dilutive effect of share issuance so far this year. We understand that income generation is in any event biased towards the second half of CTY’s financial year, when many of the big income stocks pay their final dividends. The board has stated that it is confident that it will be able to continue to increase the annual dividend this year.
The dividend yields on these UK shares soar above the FTSE 100 and FTSE 250 averages. Here’s why Royston Wild thinks they’re worth a close look.
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.
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Investing in FTSE 100 and FTSE 250 shares can be a formidable way to build a passive income. Established market positions and solid balance sheets give many of these companies the strength to pay a sustainable dividend. And right now, many top UK blue chips offer stunning dividend yields.
Recent gains mean the average yield on FTSE 100 stocks has dropped to 3.5%. The corresponding reading for FTSE 250 shares, meanwhile, has slipped to 3.3%.
I think I can do better than this, and am looking at the following three FTSE 250 stocks to turbocharge my passive income. Their market-beating dividend yields and dividend growth projections can also be seen below.
The average yield for these shares comes in at a mammoth 8%. If broker forecasts prove accurate, a £20,000 lump sum invested equally across these stocks would give me a £1,600 passive income over the next 12 months.
I’m confident that they will provide a steadily rising dividend in the coming years, too. Here’s why I’d buy them if I had spare cash to invest today.
Renewable energy stock NextEnergy Solar Fund could be considered by investors seeking reliable dividend income. That’s even though keeping solar panels up and running can be expensive, earnings-denting business.
The fund can expect revenues to remain stable regardless of economic conditions. Electricity demand remains broadly unchanged even during downturns, after all.
On top of this, NextEnergy Solar receives UK government subsidies that are linked to inflation, which in turn provides cash flows with added protection.
I think the company could be a great way for investors to capitalise on the green energy revolution.
Investing in Georgia today is riskier than it’s been for many years. The unfolding political crisis in the country threatens to undermine the country’s bright economic outlook.
But on balance, I think the risks of such turmoil are baked into Bank of Georgia’s rock-bottom valuation. Today the bank trades on a forward price-to-earnings (P/E) ratio of just 3.7 times.
With it also offering that near-6% dividend yield, I think Bank of Georgia offers terrific value right now.
This is another FTSE 250 share with considerable growth potential, in my opinion. Regional rival TBC Bank‘s near-16% profits jump last quarter (as announced last week) illustrates this point.
HICL Infrastructure mainly invests in public sector-related assets. This leaves it vulnerable to changes in government policy and legal changes.
But, I believe it’s another great way to achieve a reliable passive income. The contracted rents it receives from its portfolio of 100+ assets provides a steady stream of revenue that it can then distribute to shareholders.
HICL’s focus on key infrastructure like hospitals, schools, railways, and roads provides another layer of strength. These assets remain in high demand at all points of the economic cycle.
Please Note.
Any article is to inform your thinking, not lead it. Only you can decide the best place for your money and any decision you make will put your money at risk. Information or data included above may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
“Company earnings remain solid across the majority of our holdings, supporting confidence in the dependable nature of the dividend and income and capital growth during 2024”
Sarika Patel, Chair
Performance
In the six months ended 31 March 2024, the Company delivered an NAV total return of 1.6% compared to the total return of the FTSE All-Share Index of 6.9%. Over the period, the share price total return was -8.2%. As an asset class, UK equities struggled to keep up with other major equity markets, notably US equities. Whilst performance has been disappointing, the portfolio continues to deliver a dependable income and the Investment Manager has re-focused current positioning in the portfolio to stocks where he sees the potential for a combination of dividend yield, dividend growth and valuation re-rating. The Investment Manager’s Review provides a more detailed explanation of the drivers of this performance.
Revenue
Total income for the six months ended 31 March 2024 increased by 13.9% to £5.4 million, compared to £4.7 million for the same period last year. Management fees decreased by 21.9% compared to the same time last year. This was in part attributable to the reduction in the management fee to a flat fee of 0.55% per annum on net assets which the Board negotiated with the Manager and took effect on 1 October 2023 at the beginning of the period.
Administrative expenses were largely unchanged, meaning that overall costs charged to revenue were down 9.4% at £368k compared to £406k in 2023. The tax charge, which increased significantly from £57k last year to £447k in this reporting period, reflects an increase in withholding tax on overseas dividends, primarily in relation to South African-listed Thungela Resources. After interest costs and tax, net earnings increased by 6% to £4.3 million with revenue per share of 9.05 pence compared to 8.60 pence in 2023 for the same period. Typically, the Company earns between 30% and 40% of its total income for the year in the first six months and this year we are in the top half of that range. As a result, given the outlook for the balance of the financial year, the Board expects that the full year earnings will be sufficient to cover the proposed dividend.
Dividends
The Board declared its plans for the dividend for the current financial year in last year’s annual report and the proposed schedule is unchanged at this time. The Company currently intends to pay three interim dividends for the current year of 5.70 pence per share. The first interim dividend was paid to Shareholders on 28 March 2024.
The Board is declaring that the second interim dividend of 5.70 pence per share will be paid on 27 June 2024 to shareholders on the register on 24 May 2024 with an associated ex-dividend date of 23 May 2024. The fourth interim dividend will be determined towards the end of the Company’s financial year. The Board’s current expectation remains for a fourth interim dividend of at least 5.80 pence per share, making a total payment for the year of a minimum of 22.90 pence per share.
Based on the share price of 277.0p at 31 March 2024, this puts the Company on a dividend yield of 8.3%, amongst the highest of any investment trust invested in equities.
Portfolio Performance
UK equities advanced over the six months to 31 March 2024 as investors expressed relief over the receding risk of a hard landing for the economy, as falling inflation raised hopes of interest rate cuts later in the year.
The start of the period was characterised by nervousness over the resilience of the global economy against the backdrop of elevated interest rates and geopolitical tensions. UK consumer spending remained subdued throughout the period, reflecting cost of living concerns after a prolonged period of high inflation. GDP data for the final quarter of 2023 confirmed a second consecutive quarterly contraction in output, signalling that the UK fell into a mild technical recession in the second half of the year. The market brushed off this news, focusing instead on the reduction in inflation from 6.7% in September 2023 to 3.2% in March 2024, at the same time as a robust jobs market supported UK wage growth running ahead of inflation. This raised the prospect of accelerating GDP growth later in the year.
Elsewhere, the strength of the US economy continued to surprise investors, with the US Federal Reserve providing a further impetus to sentiment by signalling a change in monetary policy in November 2023. This helped to persuade investors that a hard landing for the US economy could be avoided. The success of the US economy was in sharp contrast to China which was held back by an ongoing slump in the real estate sector. Geopolitics remained febrile with investors’ nerves tested by tension in the Middle East and the ongoing conflict in Ukraine.
Towards the end of the period, rate cut expectations were pared back, especially in the US where inflation data remained sticky, leading to higher Treasury yields. Around the world, growth stocks continued to outperform value stocks, while cyclical stocks outperformed defensive stocks. The US equity market continued to outperform that of the UK, helped by the heavy weighting in Technology stocks at a time of intense interest in Artificial Intelligence. European equity markets benefited from their heavy weightings in Industrials, Technology and Healthcare stocks. Late in the period, the UK equity market gained some support from a reversal in commodity prices following more encouraging industrial data from China, while oil prices moved higher on concerns over the potential escalation of conflict in the Middle East. The domestically focused FTSE-250 Index was supported by hopes of imminent rate cuts, outperforming the FTSE-100 Index during the six months, although its outperformance tailed off towards the end of the period as the prospect of early interest rate cuts receded.
Total income generated by the portfolio in the period under review increased by over £650,000 or 13.9% to £5.4 million. We remain confident that the second half of the year will generate more than 60% of the total income for the period. This is the experience of the last 10 years to differing degrees and is as a result of many of the holdings declaring their final dividend for their previous financial year after our period end.
The contribution from special dividends remained low at 3.7% of the total cash dividend income. We note that share buybacks, rather than special dividends, remain the preferred method of distributing surplus capital. This partly reflects the view amongst management teams that unusually low valuations make these buybacks particularly accretive to earnings. We note that 19 of our holdings, representing 45% of the portfolio, have undertaken a share buyback so far during the current financial year.
Net revenue earnings for the six month period were £4.3 million, or 6.0% higher than last year’s £4.1 million.
We calculate that the portfolio is expected to deliver a gross dividend yield, before costs, of around 6.9% based on the income expected to be generated by the portfolio over this financial year divided by the portfolio value at the period end. While this is lower than it was at the end of the last financial year it continues to represent a significant premium to the dividend yield of the reference index of 3.8% as at 31 March 2024. Elevated interest rates are unhelpful for our investment return as they reduce the gap between the rate we pay for the bank facility and the dividend yield we earn on the portfolio, although we note that money markets are now factoring in rate cuts in late summer.
We continue to focus on identifying stocks that could help us deliver on the yield aspect of our investment objective, while also providing dividend and capital growth over time. The focus on portfolio income is consistent with our investment process given the emphasis we place on finding companies whose cash flow and dividend potential are not effectively priced in by the market.
We are aware of the challenges facing income investors, notably the preference among management teams for share buybacks over special dividends, as well as the prolonged period of geopolitical and economic uncertainty. Looking ahead, we expect many UK stocks to be able to accelerate dividend growth once this uncertainty starts to ease. This would help to reduce the concentration in dividend payments among a handful of sectors that has resulted from the unusual macro backdrop since Covid. Our index-agnostic approach allows us to consider a wide range of stocks, across the UK market, with many different drivers of earnings. We have worked hard during the period to seek out companies with strong dividend prospects from a broad range of sectors, helping to diversify the portfolio’s income.
I’ve sold the portfolio shares in Assura for a £200.00 profit after all charges.
The UK market is showing surprising strength, so I’ve owned up to my mistake and bought back AIE Abrdn Equity 2810 shares for 9k.
Current yield 7.1% trading at a discount to NAV of 6%.
Current cash for re-investment £516.00
The blog portfolio received £11,072.00 of dividends for the tax year just finished.
For anyone who wants to compound for the long term.
11k compounded at
7% for 20 years equals £42k per year.
7% for 25 years equals £68k per year.
That’s why lifestyling is a very poor idea, poor being the operative word.
Dividends for the blog portfolio expected at the halfway point £5393.
Month 7, July is the best month for dividend hunters, for this portfolio anyway.
If we add the expected dividends for month 7 and then month 10 £3,332.00.
Total £8,725.00
The blog portfolio will have achieved its fcast, better to under fcast and then outperform. That leaves a bit of wiggle room to either beat the fcast or achieve the target.
The Telegraph thinks Fidelity European can continue to deliver in the years ahead while Shares Magazine says Scottish American provides an opportunity to pick up high-quality assets on the cheap.
ByFrank Buhagiar•14 May, 2024•
Questor: Loyalty to this outperforming trust is poised to be rewarded
Can you name an equity investment company that delivered a 17% capital return over the past year – oh and the fund does not hold any of the Magnificent 7 megatechies? Answer: none other than Fidelity European (FEV), the outperforming trust in the above-titled Questor Column. And the outperformance is no one-off. According to The Telegraph tipster, which first recommended the trust in April 2023, FEV has generated a 100% total return over the last five years, outperforming the FTSE World Europe ex-UK index’s 64% with room to spare.
And with interest rates cuts on the near-term horizon and the economic outlook improving across the region – the International Monetary Fund (IMF) is pencilling 0.8% growth for the Eurozone economy this year and 1.5% for 2025 – Questor believes FEV is well placed to continue delivering in the years ahead.
Not that FEV necessarily needs Europe to pick up as a large number of the companies the fund invests in are global players. There’s healthcare’s poster child Novo-Nordisk, for example, semiconductor co. ASML and consumer goods giant Nestle. The trust is therefore not overly dependent on the prospects for the European economy. The article does note FEV’s high level of concentration – the top-ten holdings account for nearly half of the portfolio – high concentration can lead to high share price volatility. Questor is not put off though. It says this is ‘a price well worth paying for the prospect of continued index outperformance. Questor says: buy.’
Take advantage of Scottish American’s discount to NAV to pick up quality companies on the cheap
Shares Magazine gives Scottish American (SAIN) or SAINTS the once over and likes what it sees. Firstly, shares in the Ballie Gifford run global equity income fund can be bought at a discount to net assets – the shares are currently trading at an 8% discount. That means investors can gain exposure to a portfolio of ‘high-quality assets on the cheap’. High-quality assets? As at 29 February 2024, SAIN’s top-ten holdings included the likes of Novo Nordisk, Microsoft and Taiwan Semiconductor.
The above holdings are the product of the fund’s strategy which is to identify and invest in stocks that generate steady long-term growth and dividends. It’s an approach that has worked well for legendary investor Warren Buffett. And one that has worked well for SAIN in the past. Over the last 10 years, SAIN has delivered a +12.4% compound annual return. If that’s not enough, there’s always the fund’s track record of dividend growth. ‘2023 saw the trust deliver its 50th consecutive dividend increase.‘ In terms of dividends at least, the SAINTS go marching on.
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