Rising retirement income from RIRP

Rising retirement income from RIRP

Rising retirement income from RIRP. Those of you who — like me — depend principally on your investment income will be all too aware of one of the main disadvantages of a share portfolio: because most companies still pay dividends half-yearly, rather than quarterly as in the US, month-by-month dividend income can vary immensely.

In my own case my best month’s income is more than twice my worst month’s, and there is no doubt this is why many investors prefer funds which make their distributions on a quarterly or even monthly basis.

It seems I have unwittingly replicated this distortion in the Rising Income Retirement Portfolio: income for the first two months of the portfolio’s fourth year (beginning in March) was a measly £327.

But if I look ahead and include payments due in May, the cumulative figure for the year amost trebles to a more respectable £975, with projected income for the full year already nearly one tenth higher than last year.

I believe this cashflow disadvantage is a price worth paying for the benefits of long term share investment. Taking the RIRP companies paying out in the first quarter, British American Tobacco and Pearson had already announced their dividends were to rise by 13 per cent and 10 per cent respectively, and Scottish & Southern had likewise announced a 6.6 per cent rise in its interim payout, and forecast that the total for the year would be at least 6.4 per cent above last year’s, comfortably above inflation by any measure.

The market shrugged off Ofgem’s latest proposals to make the electricity suppliers more responsive to consumers, and liked S&S’s simultaneous sale of some of its wind farms and commitment to further capital investment in the sector — again specifically to “support dividend growth”.

This is the philosophy which explains how my own original holding in the company now yields annual dividends of over 28 per cent on the original sums invested, and all the better for being tax free in my ISA.

Rising retirement income
Rising retirement income from RIRP

Since our last issue Standard Life reported what look to me entirely satisfactory growth in business and profits, reflected in a rise of nearly 7 per cent in the final, and Balfour Beatty, Bankers Investment Trust and Legal & General increased their dividends by 6.2, 5.6 and 25 per cent respectively, though L&G still needs to raise its payout a further 25 per cent to get back to what it was paying before it cut its dividend in the spring of 2009.

Rising retirement income with only one inflation laggard

Of my other choices only one, Interserve, is so far failing to beat inflation. The latest 3 per cent rise in the annual payout comes despite a 30 per cent fall in full-year profits, but the company points out the second half was actually 30 per cent better than the poor first half.

It confirms its target of doubling earnings per share within 5 years, and specifically refers to the raised dividend as confirmation of its commitment to progressive dividend increases. Considering the average yield on the RIRP investment is already over 8 per cent, we can afford to be patient in the expectation it should exceed 16 per cent within the next 5 years.

I have previously explained that my portfolio makes no pretence at sectoral balance. But while the main economic indicators are all over the place, and likely to remain so for months to come because of the combination of strange weather, a late Easter, and two extra bank holidays, I am seriously considering a retailer as my next addition to the portfolio in July.

I am finding current valuations of some of the leading high street retailers hard to resist for much longer, but for now I am content to add to my holdings of Bankers IT and FirstGroup to bring them up to my 5-unit £5,000 maximum.

First published in The IRS Report on 7th May 2011.

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