Investment Trust Dividends
For any new readers the rules are. There only 2.
Buy Investment Trusts that pay a dividend to buy more Investment Trusts that pay a dividend.
If any Trust that drastically alters its dividend policy, it must be sold, even at a loss.
The current buying yield is 7% minimum, as dividends compounded over ten years doubles your income thru thick and thin and there will be plenty of thin.
Yield versus Price
If u buy a Trust at 100p yielding 10% a dividend of 10p.
If the the trust doubles in price doubles and the dividend is still 10p, the yield is now 5%.
In the future when one of your Trusts doubles in price, u can either.
Sell half and re-invest in another higher yielder, an option if the dividend has increased over the holding period, or sell all the position and try to do it all over again, all depending on the yields in the market at the time
As stock markets surge ahead, shares become more expensive and dividend yields decrease. But columnist Robert Stephens argues that the index is still undervalued and income investors can still obtain a very generous dividend yield.
by Robert Stephens from interactive investor
The FTSE 100’s surge to an all-time high may naturally prompt some income investors to question the appeal of large-cap shares. After all, the index’s rise means dividend yields will inevitably have been squeezed and market valuations will have expanded. This could equate to lower returns in future.
However, the index’s new record needs to be put into context, with its performance having been hugely disappointing from a share price perspective (excluding dividends) for the past 25 years. While the S&P 500 index has gained 256% since the turn of the century, the FTSE 100 index has risen by a paltry 20%. This equates to an annualised capital gain of just 0.8%. Although this figure does not include the impact of reinvested dividends, and therefore does not paint a full picture of the index’s true investment performance over recent years, it nevertheless highlights that many of its holdings are unlikely to be overvalued.
Indeed, the FTSE 100 index currently yields around 3.6%, even after surging by 13% over the past six months. By comparison, the S&P 500 index yields just 1.4%. This suggests that rather than now being ‘overvalued’, the FTSE 100 index’s constituents are more likely to have moved from being “grossly undervalued” to just plain “undervalued”. As such, income investors can still obtain a very generous dividend yield, both on a stand alone basis as well as relative to other stock market indices and asset classes, alongside income growth and further capital gains.
Source: Refinitiv as at 9 May 2024. Bond yields are distribution yields of selected Royal London active bond funds (end March 2024), except global infrastructure bond which is 12-month trailing yield for iShares Global Infras ETF USD Dist as at 7 May. SONIA reflects the average of interest rates that banks pay to borrow sterling overnight from each other (3 May). *Data prior to May is based on 3-month GBP LIBOR. Best accounts by moneyfactscompare.co.uk refer to Annual Equivalent Rate (AER) as at 8 May.
An improving economic outlook is a key reason for the FTSE 100 index’s recent rally. Investors are looking ahead to a continued fall in inflation that will ultimately allow central banks to cut interest rates from their current multi-decade highs. While this process is arguably not progressing as quickly as many investors had hoped for, with inflation having been stickier than expected, it is nevertheless widely forecast to continue falling in the coming months.
Lower inflation that brings an end to the cost-of-living crisis and falling interest rates that encourage spending instead of saving among consumers, are likely to prompt improved operating conditions for FTSE 100 companies. This should equate to higher profits that allow them to increase dividends. Indeed, shareholder payouts are likely to rise at a significantly faster rate than inflation as the pace of price rises becomes far more in keeping with its historical average than has been the case over recent years
Monetary policy which becomes more accommodative in response to falling inflation is also likely to persuade investors to become less risk averse. It should prompt a much improved rate of economic growth that raises demand among investors for riskier assets such as equities. This could provide further capital gains for investors in FTSE 100 stocks, with the index having the potential to reach new highs alongside the provision of a generous and rising income in the years ahead.
With the FTSE 100 being a globally focused index due to over 75% of its members’ sales being generated from outside the UK, it offers a significant amount of geographic diversification that equates to reduced risk for investors. The index’s constituents should also benefit from central banks in the US and the eurozone being in a very similar position to their UK counterpart, in terms of inflation falling and interest rate cuts being on the near-term horizon.
Furthermore, the index contains a wide range of high-quality companies that have well-covered dividends, solid competitive positions and sound balance sheets. Their size and scale means they are less risky than smaller peers, while their low valuations mean they offer wide margins of safety.
Having been overlooked for over two decades, FTSE 100 stocks offer excellent value for money in many cases and still represent a significant long-term buying opportunity for income-seeking investors.
Robert Stephens is a freelance contributor and not a direct employee of interactive investor.
These articles are provided for information purposes only.
NatWest retail share offer latest
There is speculation in the press that Jeremy Hunt is putting together the final pieces of a plan to offer the public a chance to buy shares in the high street lender.
by Graeme Evans from interactive investor
Sky News also said the proposed public offer is likely to have a £10,000 cap on applications and a £250 minimum investment to encourage wider participation.
NatWest shares, which were 204p in the hours after Hunt’s surprise announcement, traded as high as 317.9p this afternoon, a six-year best, as sentiment continues to improve across the banking sector.
TradingView. Past performance is not a guide to future performance.
A record high for the FTSE 100 index has also created a favourable backdrop for the sale as the government looks to fulfil its commitment for a full exit of its NatWest stake by 2025-26.
The 84% position taken after the 2008 rescue of Royal Bank of Scotland was down to 37% by the start of this year, falling to 27% or a total of £7.2 billion by the end of April.
UBS notes that the current level of open market share sales combined with NatWest buybacks could reduce the Treasury position to 21-22% by the month end.
The City bank said: “If the Treasury continues selling in the open market at current rates the shareholding would be roughly 17% by mid July, worth £4.6 billion at today’s price.”
To get to a 10% residual stake would require a 7% sale of stock worth £1.9 billion, less than the two institutional placings worth £2 billion and £2.5 billion in 2015 and 2018 respectively.
Sky News said an announcement on the launch of the public offer could come late May or in early June, subject to market and political conditions.
It revealed that ministers have been exploring plans that could award one bonus share for every 10 bought by retail investors and held for at least a year.
The proposed ceiling of £10,000 would mirror a previous Treasury plan – subsequently abandoned in 2015 – for a retail offering of Lloyds Banking Group
NatWest recently posted robust first-quarter results, including the return to positive trends in its net interest margin alongside profits 5% ahead of City forecasts at £1.3 billion.
Broker Peel Hunt, which has a 330p target price, views NatWest independence as important for the rating of the shares.
The broker said recently: “The end of directed buybacks would mean that share repurchase programmes would have a greater market impact.”
In addition, the desire to remove the government as a shareholder has meant a bias towards buybacks. “Although we expect significant share repurchases to remain a core part of the investment case for NatWest, capital deployment decisions could evolve more in favour of growth capital initiatives in the future.”
Investing has become more perilous as Trusts move away from their lows.
Some takeaways from the table.
Most Asset classes have their day in the sunshine and Trends can stay longer than the mother-in-law.
Last year’s weaker Trusts can be the next winners, timing is not guaranteed.
Last year’s winners may not be this year’s losers.
Some years (2022) u are not going to make any money, great if u have a dividend re-investment plan as u get more shares and a better yield for your hard earned.
On 2 May 2024, Close Brothers Asset Management sold 45,000 shares in ICG-LONGBOW SNR SCD UK PROPERTY DEBT INV CO . This brought our shareholding to 16.99% of the shares in issue. This is based on the shares in issue figure of 121,302,779 as at 2 May 2024.
This is the required notification that the holding has crossed below 17% of the shares in issue.
MoneyWeek
PERSONAL FINANCE
PENSIONS
The 4% pension rule to retire comfortably
Ever wondered when the best time is to retire and access your pension pot? Here is how the 4% pension rule could help you retire comfortably.
BY MARC SHOFFMAN
CONTRIBUTIONS FROM
RUTH EMERY
Accessing your hard-earned pension pot when you are ready to retire is a major milestone.
But deciding how and when to start taking money from your pension savings can influence how long the money lasts and ultimately the lifestyle you will be able to enjoy during your golden years.
As well as hopefully enjoying the returns from your retirement savings, money still needs to be available for bills and possibly your own long-term care.
Understanding when to retire, and how much money to take out of your pension to give you a reliable stream of income, is crucial.
That is especially important as the cost of retirement is rising.
The latest research from the Pensions and Lifetime Savings Association suggests retirees need an income of £43,100 per year for a ‘comfortable retirement.’
Can applying the 4% pension rule help? We explain what it is and how it works.
What is the 4% pension rule?
A popular rule for pension savers is to take 4% of the value of their fund in the first year of withdrawals and increase that by the rate of inflation each year. This is supposed to last a typical retiree 30 years.
Academics at the American Association of Individual Investors devised the 4% rule in 1998 after researching a sustainable withdrawal rate for a retirement pot that wouldn’t deplete the savings.
It looked at data from 1926 to 1995 and found that a rate of 3-4% is “extremely unlikely to exhaust any portfolio of stocks and bonds”.
Can I rely solely on the 4% rule?
Like all rules of thumb, says John Corbyn, pensions specialist at the wealth manager Quilter, the 4% concept is based on certain assumptions.
“It needs to be overlaid with someone’s state of health and propensity to spend which is likely to be higher for younger clients and lower for older clients,” he says.
“Care needs to be taken to ensure the attitude to risk and propensity for loss is also built into these assumptions.
“Depending on your risk tolerance, investment strategy, and the actual returns you get, you might consider a slightly more conservative withdrawal rate.
Corbyn says it is crucial to continuously review and adjust your strategy based on your actual investment returns, spending needs, and the broader economic landscape.
“Ultimately, pensions are a long-term savings vehicle and potentially may need to pay for someone’s income for up to 30-40 years, and care needs to be taken if the fund is accessed early as short-term gain may lead to long-term pain so getting advice is key,” he adds.
Joshua Gerstler, chartered financial planner for The Orchard Practice, says that while the 4% rule is a good guide, in reality our spending patterns are not linear.
“We might want to spend more in the early years of retirement, for example, to travel around the world,” he says.
“Our spending may slow down as we get older and are less able to get out and about. Albeit this could be offset by an increase in care fees. If you have a financial plan then you will have a good idea of how much you can access without ever running out of money.”
It’s important to note that this strategy may not work for everyone and is just one of many factors to consider when retiring.
Make a retirement plan
What you plan to do with your retirement will also have a huge impact on when you should start accessing your pension pot, so it’s a good idea to know what you want to do and the costs of doing it.
“If you have dreams of travelling the world then you might need much more retirement income than if you are content with a quiet life at home,” says Corbyn.
“It’s essential to have a realistic projection of your monthly and yearly expenses, including contingencies for unexpected costs.
“Financial planners can help produce cashflow models that look at your holistic finances and show you how much you can expect to have and what kind of retirement lifestyle that will buy you.”
The importance of timing when retiring
You can’t help when you were born but it is worth thinking about when you start accessing your pension pot as market returns will have an influence on the success of the 4% rule.
Investment firm Fidelity recently attempted to see if the 4% rule had stood the test of time.
One major factor was timing.
It looked at the value of two £100,000 funds after 15 years – one starting in 2000 and one in 2003.
Despite there being just three years between their start points, the pot beginning in 2003 grew to be more than two-and-a-half times bigger than the pot beginning in 2000.
This is because the pot being accessed in 2000 was hit by the dotcom boom, so there wasn’t an opportunity to make up for these losses, while the 2003 pot benefited from the post-crash recovery.
Ed Monk of Fidelity suggests building flexibility into the strategy so you can avoid the worst time to sell your investments.
“Another tactic is to tweak your withdrawals in periods of falling markets so that you take just the income that is produced naturally from investments,” he says.
“This might include the dividends from company shares, income from funds or the interest from bonds. This might mean a lower level of income overall, but it means you won’t need to sell assets when their price has fallen.”
If you’re retiring in a period of economic downturn, adds Corbyn, it may be wise to be more conservative with withdrawals, at least initially.
Gerstler suggests it is also important to consider other savings and investments held outside of pensions as part of your whole retirement strategy.
Don’t forget about tax
Whatever rule you use, experts say it is always important to consider the tax implications.
This is because beyond the 25% tax-free lump sum, you will need to pay income tax on withdrawals if you are earning above the personal allowance.
It may not take much to go above the £12,570 allowance, given the state pension is currently at £10,600 a year and set to rise to £11,500 from April 2024.
“Tax planning is a crucial aspect of accessing a pension, and those who are thinking for instance of buying an annuity or accessing a pension flexibly by withdrawing taxable amounts should take note if they are earning or taking taxable income from elsewhere, including the state pension,” says Alice Haine, personal finance analyst at the investment platform Bestinvest.
“For someone drawing the full flat-rate state pension at the moment, additional income – whether from work or a private pension – of more than £1,970 a year will take them over the personal allowance and into basic-rate tax.
“For those with larger pensions or higher incomes, there will be the potential risk of being taken into the higher or even additional-rate tax brackets, and some savers in drawdown should moderate their pension income to avoid this.”
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