Investing in Shares..

[equitymate]

The thing with LICs you have two types internally managed low fee or externally managed higher fees(usually niche more like smallcap managed or geared funds)
My interest with LICs is only low fee internally managed ones.

 

[TPI]

Large Blue chip LICs like ARG/AFI/MLT have traditionally outperformed the index, they do so by index hugging while excluding stocks that are highly cyclical boom bust ,latest tech bio darlings or any stocks without ff dividends, so on a long term basis I prefer LICs to ETFs especially when at a nice discount to NTA.

However for me there is little value in the buying an LIC when the price is trading above the NTA like AFI currently for example, much better buying when it is trading at a discount so I would look at ARG or MLT and if there doesnt seem to be much discount to NTA I would weigh up some smaller blue chip LICs like AUI,DUI or BKI with similliar philosophy, performance and low fees but less liquidity or an ETF.

But then again I wouldnt be adding to my holdings at the moment as the market looks overcooked to me but who really knows...

I like LICs, and I prefer them over ETFs, but dividend growth has been very poor in recent years.

Looking at some old school, low-cost LICs:

AFI's DPS was 12c in 2000 and today it is 22c.
ARG's DPS was 16c in 2000 and today it is 26c.
MLT's DPS was 63c in 2000 and today it is 84c.
WHF's DPS was 12c in 2000 and today it is 17c.

The CAGR (compound annual growth rate) of dividends over the last 13 years then are:

AFI - 4.77%
ARG - 3.81%
MLT - 2.24%
WHF - 2.72%

After inflation you are just barely achieving positive growth on AFI and ARG dividends, and possibly negative growth on MLT and WHF dividends.

Although they paid a dividend every year, the dividends really need to be increasing well above the rate of inflation for them to be considered good dividend stocks... don't they (otherwise you could buy treasury inflation-linked bonds and get the same income growth for zero risk)?

They are promoted as great for long-term buy and hold/income-orientated investors, but the poor history of dividend growth never seems to get a mention.

Having said that I think they can be useful for some investors and buying them when they are at a discount to their NTA is a pretty simple and effective strategy.

 

[D.T.]

Dps growth is only half a story though, what's the eps and capital growth (share price) doing?

Ie a company that dividends out 10% every year would have 0 dps growth according to your definition, but is still pretty good?

 

[equitymate]

TPI Good points but dont forget Dividends got cut in the GFC while the LICs basically maintained theirs.
I think big LICs try to smooth out the volatility in this regard so they never/barely have to cut, compare 10 years of dividends in AFI to STW for example, even if the dividend growth was the same at the end of the day AFI has consistently outperformed the index with less volatility in dividends.

 

[pierso]

I like the idea of dividend growth investing and have been doing lots of reading about it from contributors on the US based forum seeking alpha, but I struggle with applying what I'm learning to Australian stocks.
The US market seems to have a greater number of dividend champions that have been paying increased dividends every year for over 25 years.
They US market seems to have more stocks with DGRs well over the rate of inflation.
With a much bigger market they seem to have lots more “big name”, multinational stocks with “large moats”, especially consumer staples with multi brands . Do a lot of Australian ones get bought out by larger overseas corps?
The US seems to have a lot more information and tools (both free and paid) to help screen DGI stocks.
I’m interested to learn if one would be better off constructing a portfolio of Australian DGI stocks rather than buying LICs, but they seem harder to find in Australia.
What are your views on this and what screening tools do you know of in Australia that would help me in my search/learning?

 

[equitymate]

Pierso The Australian imputation system doesnt encourage it. What you are looking for ROE holds the key especially if the company has a lower payout ratio like in the US .

One example of what I mean is CSL phenomenal dividend(and earnings) growth while maintaining a lower payout ratio because every cent they hold back from paying out they can grow it by 25-40% (avg 10 year roe) obviously the next year increasing the dividend at a higher rate.
Its the power of compounding its just hiding in the corner.

 

[TPI]

Dps growth is only half a story though, what's the eps and capital growth (share price) doing?

Ie a company that dividends out 10% every year would have 0 dps growth according to your definition, but is still pretty good?

Well EPS growth is marginally better.

For the 9 years from 2004 to 2013:

AFI's EPS went from 14.3c to 23.5c - growing at a rate of 5.67% pa.
ARG's EPS went from 18.5c to 27.7c - growing at a rate of 4.59% pa.
MLT's EPS went from 11.7c to 17.8c - growing at a rate of 4.77% pa.
WHF's EPS went from 12.1c to 13.5c - growing at a rate of 1.22% pa.

And often they maintain the DPS by paying money out of retained earnings, so in some years DPS is much higher than EPS (ie. payout ratio > 100%).

Would have to look at their charts to see the share price trends/changes.

And the ROE's in 2013 for these were (pretty low):

AFI - 5.2%
ARG - 4.6%
MLT - 5.0%
WHF - 3.5%

Regarding a 10% yield every year with no DPS growth, I think this is only ok for shorter-time periods eg. less than 5 years, but for longer time periods eg. 10, 20, 30+ years, no DPS growth (even with a high initial yield) isn't a good thing due to inflation.

 

[TPI]

TPI Good points but dont forget Dividends got cut in the GFC while the LICs basically maintained theirs.
I think big LICs try to smooth out the volatility in this regard so they never/barely have to cut, compare 10 years of dividends in AFI to STW for example, even if the dividend growth was the same at the end of the day AFI has consistently outperformed the index with less volatility in dividends.

Sure compared to the index or STW they are definitely much more stable, so that's a good thing.

Also for interest, since 2000, AFI's DPS has not decreased.

ARG's decreased in 2009 and 2010.

MLT's decreased in 2002, 2005, 2009 and 2011.

WHF's decreased in 2011.

 

[redwing]

TPI Good points but dont forget Dividends got cut in the GFC while the LICs basically maintained theirs.
I think big LICs try to smooth out the volatility in this regard so they never/barely have to cut, compare 10 years of dividends in AFI to STW for example, even if the dividend growth was the same at the end of the day AFI has consistently outperformed the index with less volatility in dividends.

Accumulation Index

 

[Intrigued again]

Shouldn?t we regard the reinvested dividend at least while we are accumulating, and if we only use DRP for say AFI
Capital growth would run around 11% mark
Dividend growth would run around 9.20% on average.
No tax considered.
And if the buys where on the lows on the given years the outcome would much better but brokage needs to be considered.

 

[equitymate]

Accumulation Index

yes accumulation index

 

[willair]

And if the buys where on the lows on the given years the outcome would much better but brokage needs to be considered.

There is no brokage fees on "DRP",plus you always get a small% financial institution shareholder discount add that into the mix and it gets better..

 

[equitymate]

TPI with LICs ROE does not tell the whole story for example if an LIC held only one stock say CBA and Cba went up 5 percent one year that means the LIC ROE is 5 percent even though the ROE of CBA is over 15 percentage. That means the real ROE of the LIC would be 15 percentage if that's all they held.

The best and fairest measurement of an LIC is it's NTA accumulation vs the index accumulation while remembering the NTA accumulation is after taxes and costs you will see most of the internally managed ones come up trumps.

 

[D.T.]

There is no brokage fees on "DRP",plus you always get a small% financial institution shareholder discount add that into the mix and it gets better..

But it dilutes ownership

 

[TPI]

TPI with LICs ROE does not tell the whole story for example if an LIC held only one stock say CBA and Cba went up 5 percent one year that means the LIC ROE is 5 percent even though the ROE of CBA is over 15 percentage. That means the real ROE of the LIC would be 15 percentage if that's all they held.

The best and fairest measurement of an LIC is it's NTA accumulation vs the index accumulation while remembering the NTA accumulation is after taxes and costs you will see most of the internally managed ones come up trumps.

Yes that's a good point, better to stick to NTA's, thanks.

 

[Crabnet]

But it dilutes ownership

Not always. As we've seen just recently with three of the four major Aussie banks that have bought back modest amount of shares on market to offset the dilutive impact of DRP's. They sometimes do the same with the freebies that they give to their executives by buying the shares on market.

 

[nww]

Hi nww

Didn't read through a PDS, what are their fees like?

Next time Im home I will check a statement for management fee's on total investment.

You do have the option of nil entry fee on some funds but these would have slightly higher management fee I would presume.

 

[willair]

But it dilutes ownership

Maybe,, but you would need past data to discover whether a probability distribution works out that way,iv,e been investing in Banks for over 19 years now and sometimes you end up thinking your on the wrong road between reality and the wrong direction..

 

[ScottyB]

My analysis of the Australian Market and outlook lead me to seek better value elsewhere at the moment.

I use www.hl.co.uk which is a "Fund Supermarket"

I buy in GBP so I received an additional benefit of moving AUD back into GBP when the rates were back @1.50-1.60 and I "Cost Average" and continue to do so now at poorer rates expecting the AUD to continue to weaken.

On top of that I have a large amount of funds in Packer & Co Investigator Trust their Outlook is very similar to mine. Outwith AUD Market at the moment - Latest Newsletter Quote and Link:

"Closer to home, we believe Australia?s economic outlook is challenged to say the least. In many ways the Australian economy is facing a ?perfectstorm?. Australia has ridden the greatest investment boom in history"

Link to Newsletter - http://www.packerco.com/media/newsletters/PackerCo_June2013.pdf

I have bench marked them using Morningstar and filtered my research to only review the top 15 performing across short/medium and long term time windows which includes products from:

Ausbil

First Choice

Perpetual

Schroder

Vanguard

BT

Several things to point out though as it is not all roses:

1 - The Packer Product has the largest Bid/Sell Spread @ 0.74 versus the next closest rival fund @ 0.50

2 - It is the only fund which charges an exit fee out of the 15 I reviewed currently 0.40

3 - It also has the highest ICR @ 2.97 versus it's next closest rival @ 1.9

4 - It also charges an entry fee of 0.40 - Only 4 of the 15 reviewed charge on the way in.

 

[Intrinsic_Value]

I recently read Value.Able by Roger Montgomery. It made a lot of sense to me and has changed my attitude toward shares (for the better). Highly recommend it as a starting point.

It has a couple sections on Accounting 101 type topics (Company balance sheets etc) which are pretty dry, but well worth persisting through.

Totally agree, but its a bit like University.
This book is for year 3 Uni students, first you need the real basics.

I would suggest stockmarkets for dummies or something like that (not saying anyone is a dummy).

One can really only truly appreciate some of the more advanced thinking once one understands the basics.

The real secret key is that there is no key.
I will let others ponder this.