Understanding Dividend distributions from Income Funds

Hi everyone,

As many others have successfully combined IP investing with another 'element' to produce income(eg business, shares, renovating, developing, sell down and pay down debt, etc), I am interested in the effectiveness of investing in a High Yielding Index Fund to produce a sustainable income stream over time. (Eg Vanguard's High Yield Australian Share Fund, or something like the Perennial Value High Yield Shares Trust)

(http://www.perennial.net.au/content/boutiques/2169/2709/2717/10736)


I am thinking of the possibility of using some of our excess money each month to pay down IP debt, and to invest a portion into a High Yielding income fund. (As for example those above)

I am a little confused as to how the dividend distributions from the fund work. With the Vanguard High Yield Australian Share Fund, the unit price is approximately $1.14. The distributions occur monthly, and according to this information:

www.vanguard.com.au/personal_investors/fund-performance/managed-funds-up-to-$500000/en/income-distributions.cfm

the distribution in July was .49 cents per unit. This seems a very high yield. What am I missing??

Is anyone currently combining the two strategies (ie IP with investing in Index Funds or the like for income). How successful is it?

Is it better just to pay down IP debt and draw an income entirely from Ip's? Or is the combination an effective strategy?

Would appreciate people's ideas - especially an explanation on the distribution of the monthly/quarterly dividends.

Look forward to reading people's replies.

Regards Jason.
 
im guessing here, but given it is a unit trust it 'distributes' all profit every period.
Profit will constitute both dividends and realised capital gains.
Hence you cant extrapolate a single distribution as the long term yld for the fund.
 
im guessing here, but given it is a unit trust it 'distributes' all profit every period.
Profit will constitute both dividends and realised capital gains.
Hence you cant extrapolate a single distribution as the long term yld for the fund.

Thanks chilliaa,

Would that mean it wouldn't be suitable to grow/preserve your capital as well as receive income from?

Regards Jason.
 
im guessing here, but given it is a unit trust it 'distributes' all profit every period.
Profit will constitute both dividends and realised capital gains.
Hence you cant extrapolate a single distribution as the long term yld for the fund.

I rang Vanguard to clarify. That .49 cents is actually half a cent!!

Makes a lot more sense. So the fund would averages a yield of approximately 5% p/a. Except Vanguard doesn't speak in terms of yield and emphasized that past performance is no indication of future results!

Thanks again chilliaa,

Regards Jason.
 
Hi Jason,

I'm also interested in what other investments can be used to increase cashflow to balance out a negatively cashflowed IP portfolio.

Navra had some interesting products (hybrid warrants). Have you checked those out?

David.
 
I am also thinking of combining IPs and Vanguard high yield index fund(it provides monthly distribution, i like it its just like another effortless job:p) together but I am now sitting on 1 property only which i just bought with the FHOG and with an income of around 60K and being 25, am I being too concervative to do this now as I am probably able to absorb some negative cashflow? Is there any way to tell when i should stop accumlating and start to focus on 'income'?
 
the unit price is approximately $1.14.

the distribution in July was .49 cents per unit.

This seems a very high yield. What am I missing??


Therefore div = 12 * 0.49 = 5.88c per unit per annum

Therefore yield = 5.88 / 114 = 5.15% nett yield.


Looks like the only thing you are missing Jason is a proper definition for a very high yield.

If Vanguard can get away with calling their investment vehicle "high yielding" whilst only paying out 5.15% p.a., then anything is possible.

My definition of high yielding is anything greater than the cost of funds to purchase it.
 
Therefore div = 12 * 0.49 = 5.88c per unit per annum

Therefore yield = 5.88 / 114 = 5.15% nett yield.


Looks like the only thing you are missing Jason is a proper definition for a very high yield.

If Vanguard can get away with calling their investment vehicle "high yielding" whilst only paying out 5.15% p.a., then anything is possible.

My definition of high yielding is anything greater than the cost of funds to purchase it.

Thanks Dazz,

Yes. Not great at all.

Regards Jason.
 
Hi Jason,

I'm also interested in what other investments can be used to increase cashflow to balance out a negatively cashflowed IP portfolio.

Navra had some interesting products (hybrid warrants). Have you checked those out?

David.

Thanks David,

I have read about Navra, but haven't been sure how effective the product was. I know a couple of years ago there was some fierce debate on the forum regarding the Navra products! :eek:

Anyway, still worth checking out.

Regards Jason.
 
I am also thinking of combining IPs and Vanguard high yield index fund(it provides monthly distribution, i like it its just like another effortless job:p) together but I am now sitting on 1 property only which i just bought with the FHOG and with an income of around 60K and being 25, am I being too concervative to do this now as I am probably able to absorb some negative cashflow? Is there any way to tell when i should stop accumlating and start to focus on 'income'?

Hi VCDenton

The dividend received from the Vanguard fund is actually very low, and wouldn't be very effective in reducing the shortfall on a -ve geared property.

A couple of months ago when the market was very low, it was possible to buy higher yielding shares. But since the upturn many shares (well, bank shares anyway) are returning around 5%.

I shall keep looking!

Regarding -ve gearing, it really depends on levels you are comfortable with. I'm aiming for a neutral portfolio. The sooner the better.






Regards Jason.
 
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