Investment Trust Dividends
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Warren Buffett, the Oracle of Omaha, is a name synonymous with success, wisdom, and wealth in the world of investment.
Buffett has shared his advice with fellow investors. But there’s one lesson that should stand above the rest for the young cohort. That’s the power of time.
That because, while it’s true that Buffett made a significant portion of his wealth after the age of 50, this was largely due to the miraculous effects of compounding.
The hallmark of Buffett’s success is undoubtedly the magical concept of compounding. This phenomenon, which he refers to as the “eighth wonder of the world,” is responsible for the substantial growth of his wealth.
Compounding accelerates the growth of investments over time, and the sooner one starts, the more powerful the effect.
It essentially works because, by reinvesting our returns year after year, we start to earn interest on our interest as well as our starting capital.
For anyone in their twenties, it’s a huge opportunity, even starting with a small sum.
Compounding takes time to work its magic, making the early years of investment crucial for long-term wealth accumulation.
Buffett’s long-term outlook syncs perfectly with the principles of compound returns, allowing him to reinvest returns in his carefully selected long-term investments year after year.
Moreover, his commitment to long-termism enables him to ride out market volatility, avoid emotional decisions, and focus on the enduring value of his investments.
What does investing for the long run and leveraging time look like for young investors. Well, let’s imagine I’m starting a portfolio at the age of 20, and I have no starting capital.
And because I have no starting capital, I’m going to commit to contributing £200 a month, and I’m going to increase that contribution by 5% annually — broadly in line current inflation.
The thing is, at 20 I’ve got a long investment horizon, and theoretically, I could be working for the next 50 years.
So, taking into account the aforementioned, and using a 8% annualised return as an example, here’s what I’d potentially have at the end of it — £3.2m.
Created at thecalculatorsite.com© Provided by The Motley Fool
Of course, if I invest poorly, I could lose money. Compound returns also works negatively too.
But while I’ve used 8% as an example, it’s worth noting than more experienced investors will aim for low double-digit annualised returns.
If we swapped 8% in our calculation for 12%, the end figure after 50 years would be £12.6m. That’s a phenomenal number.
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If u look at any compound interest table, it doesn’t matter what your timescale is, the last years are when u really start to benefit from compounding. So the sooner u start the better of u should be. Stick to your plan thru thick and then and there will be plenty of thin.
06 June 2024
Experts suggest UK and global funds from Evenlode, Guinness, Fidelity and others.
By Emma Wallis
News editor, Trustnet
Retired investors often have a specific income target and an aversion to losses. Bonds, therefore, make up a significant part of their portfolios but equities have a role to play as well by providing dividend income and capital growth.
Equity income funds tend to hold up better than bonds during periods of inflation, said Richard Parkin, head of retirement at BNY Mellon Investment Management.
He thinks actively-managed funds make more sense than passive trackers, “if you buy into the idea that retirement isn’t about maximising returns, it’s about avoiding losses”. Although most active managers struggle to keep up with raging bull markets, the best are adept at cushioning investors from bear markets and avoiding “howlers”, he said.
Jason Hollands, managing director of Bestinvest, recommended prioritising managers who focus on income growth potential, rather than trying to maximise current yields. “If you are going to supplement your retirement income through equity income funds, you will probably want to avoid erratic payouts but will also need to see both capital growth and income growth over time, so that payouts can keep pace with inflation,” he explained.
To that end, Trustnet asked fund selectors to recommend equity income funds that combine downside protection with growth potential.
Martin Currie UK Equity Income
Tom Stevenson, investment director at Fidelity International, argued for an allocation to UK equities.
“For investors looking to achieve a high and growing income stream in retirement, a UK equity income fund might fit the bill. The UK is traditionally a good source of equity income and today our domestic market stands at an attractive valuation discount to many other markets,” he said.
FTF Martin Currie UK Equity Income was Stevenson’s first choice. It is managed by FE fundinfo Alpha Manager Ben Russon, Colin Morton, Joanna Rands and Will Bradwell, who Stevenson said “have good experience in finding companies that can pay sustainable and growing dividends”.
The fund is relatively focused with 48 holdings, including Shell, BP, Unilever, AstraZeneca, National Grid and Imperial Brands.
BlackRock UK Income
Hollands suggested BlackRock UK Income because it“balances the need for stable, growing payouts with continued capital growth”. Managers Adam Avigdori and David Goldman have produced attractive returns with an above-market yield and the fund has held up well in difficult markets.
“The focus is on companies able or with the potential to pay a growing dividend alongside rising capital, rather than investing in businesses paying a high but stagnant yield. The managers are nimble and are able to move the portfolio around depending on the market environment and valuations,” Hollands said.
Performance of UK equity income funds vs benchmark over 10yrs
Source: FE Analytics
Evenlode Income and Evenlode Global Income
Hollands also recommended Evenlode Income, managed by Hugh Yarrow and Ben Peters.“The team has a clear and consistent investment philosophy, focused on high-quality companies with strong free cash flow that can support dividend growth and with a high return on capital. The managers prefer capital-lite businesses where shareholder capital isn’t constantly being drained by the need to reinvest heavily in things like plant and machinery,” he said.
“The fund may tend to lag in rising markets, but it has historically delivered strong and consistent outperformance.”
The fund’s global sibling is another solid choice for retired investors, according to Kamal Warraich, head of fund research at Canaccord Genuity Wealth Management. Evenlode Global Income focuses on generating attractive totalreturns, dividend growth and a sustainable income, he said.
“The portfolio is biased towards quality companies that generate high and consistent levels of free cash flow. Importantly, the hallmarks of this process tend to provide protection on the downside,” he explained.
JPMorgan Global Growth and Income and JPM Global Equity Income
Samir Shah, fund research analyst at Quilter Cheviot, said the JPMorgan Global Growth and Income trust is a good option for retired investors because it provides growth plus a 4% yield.
“The fund selects from only JPMorgan Asset Management’s firm-wide highest conviction ideas that offer superior earnings quality with a faster growth rate. In addition, it pays a dividend set at the beginning of each financial year equivalent to 4% of net asset value, which is funded by a combination of revenue and capital reserves,” Shah explained.
“Along with a strong track record of returns, the ability to pay a market-leading yield while also providing their best ideas from a total return perspective is attractive.”
The trust was trading at a discount of -1.1% as of 3 June 2024 and has £2.7bn in total assets. It is run by FE fundinfo Alpha Managers Helge Skibeli and Timothy Woodhouse along with Rajesh Tanna.
Juliet Schooling Latter, research director at FundCalibre, recommended another JPMorgan AM strategy managed by Skibeli – JPM Global Equity Income, which takes a value-oriented aproach.“The fund’s experienced management team prioritises risk management, seeking to deliver a compelling yield without compromising growth potential,” she explained.
“The managers strategically balance ‘compounders’ (companies with consistent long-term growth), high-yielding stocks and higher-growth opportunities within the portfolio. This well-diversified strategy positions the fund as a core holding for investors seeking a balance of income and capital appreciation.”
Guinness Global Equity Income
Guinness Global Equity Income is an equal-weighted portfolio of around 35stocks, split between cyclical and defensive names. Managed by Ian Mortimer and Matthew Page, the fund has low turnover, which limits transactions costs.
Sophie Turner, a research assistant at FE Investments, said: “This fund focuses on stocks with quality characteristics and low debt, which the managers believe can provide consistent performance throughout the entire economic style. It invests into companies which have strong balance sheets and the ability to grow their dividend stream over time.
“This strong emphasis on quality and dividend growth names means the fund protects well in downturns but tends to lag in strong bull markets. The fund has shown consistent best-in-class performance over a long period, as a result of its well defined, robust and repeatable process.”
Performance of global funds vs MSCI ACWI over 10yrs
Source: FE Analytics
Fidelity Global Enhanced Income and Fidelity Global Dividend
Fidelity Global Enhanced Income uses derivatives to generate extra dividend income, with 40-60% of the fund overlaid by a covered call sleeve. This boosts the fund’s defensive profile, so it should protect capital in a falling market, although performance will lag when the stock market is rising, Turner said. Indeed, performance has been slightly below the fund’s benchmark since inception but with far less volatility.
The fund’s underlying stocks are also quite defensive, Turner pointed out. The managers – David Jehan, Fred Sykes, Jochen Breuer and Vincent Li – invest in companies with strong balance sheets and high-quality earnings which are trading at attractive valuations.
Meanwhile, Schooling Latter suggested another Fidelity International fund. “Fidelity Global Dividend is a core global income fund designed for investors seeking a stable and potentially rising stream of income,” she said.
The fund invests in companies with healthy and sustainable dividend yields, aiming to provide regular and growing distributions while prioritising capital preservation.
“We commend manager Dan Roberts’ value-driven philosophy, which emphasises disciplined investment. This reduces the risk of overpaying for stocks and potentially mitigating losses during market downturns,” she stated.
“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.”
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
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.
‘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.
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.
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
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Different strokes for different folks.
MoneyWeek
Top investment trusts ranked
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.
Fourth interim dividend
For the year ended 31 March 2024
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.
SDCL Energy Efficiency Income Trust plc
(“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.
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