Tag Archives: rising income fund

Finally time to use RIRP as was intended

Finally time to use RIRP as was intended

I launched the Rising Income Retirement Portfolio (RIRP)  ten years ago this coming March after phasing myself out, as planned, from the private companies I had sold two years earlier. One reason was that well wishers advised me that as I had been a notorious workaholic I should get involved in some other activities to prevent myself curling up and dying from boredom; resuming writing after many years broadcasting was one of several commitments I undertook.

I soon realised that the advice – although well meant – was based on a wicked puritan lie. Now as I approach my 72nd birthday I have decided to wind down all my outside activities. I find I am quite capable of passing my time very agreeably without getting the slightest bit bored. My ideal retirement is an extended version of my working-life definition of a holiday: a time when I never have to look at my watch or meet a deadline; my various commitments are now increasingly frustrating this ambition.

So in this final review of the RIRP and its younger offspring, the Income for Life Portfolio, I am distilling the main lessons I have learned during this fifth decade of my life as an active investor; they may also act as pointers for anyone wishing to continue or emulate a portfolio such as these.

If my original aims had been fully achieved, there should be nothing for them to do unless a company gets taken over, cuts its dividends, or goes bust.

Lessons start here

But the first main lesson is that even for a “buy and hold” investor like me, all portfolios require a greater degree of active management than I now want to provide, other than to my own investments. The second lesson is that the original concept – finding shares with a likelihood of delivering above-inflation dividend increases – is entirely possible, as the RIRP proves; but the second part of the plan, to be able to largely forget about them, is not practicable, and not least because of the distorting effect of special dividend payments, to which companies seem increasingly attracted.

The third lesson is one every honest journalist or fund manager knows, but is easily tempted to forget: however experienced we may think we are, none of us is infallible. Although most of my RIRP shares are those I started with, various unforeseen failures – ranging from a change from rising to gently declining dividends, such as Sainsbury’s, through big cuts such as Pearson recently, to outright suspension such as Balfour Beatty and Interserve – have combined with successful or unsuccessful takeovers such as Sky to produce more changes over the years than I had ever anticipated.

But even given the impact of my most recent manifest error, GLIF, overall I can claim considerable success. The total income available this year from the RIRP equates to a yield of over 7.2% on the sums originally invested, and even the three year old IFL could distribute over 6.7%. But in both cases some of this comes from a combination of special dividends or realised capital gains, which were very much not part of the original plan.

Income growth is king

The real test for me is the growth in the underlying income, the first bold figure in the penultimate columns of tables 1 and 2. For the current year the RIRP only squeaks in just ahead of inflation, and that only thanks to an adjustment I made last year from my “bonus” fund when I was facing a short term income reduction from reinvesting halfway through the dividend year. But the overall rise is despite the complete collapse in dividends at GLIF, which I greedily included in both portfolios, compounded in the RIRP by the massive cut in Pearson’s most recent dividend. In both cases the full impact will not be felt till the forthcoming accounting years. The fact that special dividends and realised capital gains boost the total available income of both funds well above any measure of inflation only disguises the failure this year to achieve the core investment aim.

Excluding the party poopers, the underlying dividend growth for the other shares has been strong: 11.2% in the RIRP and 5.8% in the younger IFL. Over the decade the RIRP’s underlying income is up 56% on its initial 4% target, while underlying projected full year income from the existing shares in the IFL represents growth of nearly 6% on the initial 5% target yield.

I have always claimed that so long as the dividend targets were achieved, I could afford to be entirely indifferent to changes in the capital value of the portfolio. In the long term, market values should rise at least in line with dividend payouts, and so it has proved with the RIRP. In this final appraisal I am showing the market value of each of the shares, and their percentage rise or fall from their original purchase price. The RIRP’s 37% increase in market value has marginally exceeded the rise in the RPI over the decade shown in Table 3.

So I have preserved the real value of my capital while seeing my underlying income rise from an initial 4% by nearly double the 30.4% rise in the RPI.

The IFL currently fares less well, but may be excused to some extent since it was constructed within one year with an ambitious first year fully invested yield target of 5%, which it exceeded.

But the fact the year ended with the (unrepresentative) FTSE 100 index at an all time high means I cannot ignore the fact that these selections are living proof that a rising tide does not necessarily lift all vessels equally. I find I am ending the year with paper losses in nearly half of the IFL shares, which makes it all the more impressive that overall the portfolio shows a tiny capital gain. In neither case should this be relevant, except that I have previously resorted to realising some capital profits to make up for the mistakes I have not been clever enough to avoid.

In providing some guidance for the future, quite apart from GLIF I cannot ignore the doubts the market clearly has over Centrica, Connect, Kier and Marston’s. Normally I would take comfort from the fact all these companies except Centrica raised their dividends this year; but equally I remember that in the year before the banking crash all the UK banks rashly raised their dividends by an average of double figures.

You do the maths

The final lesson I take away for the last decade is a mathematical formula for resolving the dilemma of whether and how to reinvest in such cases. The problem is always how to preserve the underlying income flow when the capital value has collapsed. To take a current example: if Centrica merely maintains its dividend, it is still only yielding me 4.7% on my original investment against a higher portfolio average of 5.3%. But if I sell it, at its current diminished market value I need 8.7% just to suffer no fall in income, and that is simply unobtainable from anything I know of which shows any prospects of dividend growth. The only way to plug such a gap is to use the capital profits generated by reducing the stake in one or more of the star capital performers, such as HSBC or BATs, which in both cases requires sacrificing shares with record-breaking dividend growth, helped in HSBC’s case by declaring its dividends in US dollars.

Maintaining control

I’m aware that people who do not know me may conclude I am chucking everything in at the first signs of problems. To restore the balance I must boast that I have come out well against some of the “control” shares which we built into the RIRP, to make sure I was not reinventing the wheel. Early on I included Bankers IT, the only investment trust I could find whose aim was the same as mine: dividend increases above inflation. A surprise 12.2% dividend spurt over the past 12 months coupled with the RIRP’s below par performance means they have finally fractionally beaten the RIRP: their dividend increases over the decade are 60% against my 56%; and although my earlier slightly creative reinvestment accounting means the table overstates the rise in Bankers’ capital value, it has significantly outpaced the RIRP, even though it has had to bear transaction and administration expenses which my portfolios ignore.

But there is a cost: just as its starting yield was well under my minimum 4% target, so anyone thinking of buying today has to make do with a 2.1% yield against 4.5% from my mature portfolio. If in the future any capital gains are needed in the RIRP for any reason, this is clearly a prime candidate.

The same is true of Reckitt Benckiser, added at the same time as the much higher yielding Direct Line, in response to some subscribers’ suggestion that I should include a lower yielding “growth” share as a comparator.

To my pleasant surprise its 25% rise in underlying dividends only marginally beats DL, so RB is still only yielding half as much on the original cost of its shares as Direct Line. DL has therefore paid out twice as much actual money to the RIRP as RB. My income from DL has been further boosted by regular special dividends which far outweigh the benefit received from RB’s spin off of Indivior, which I sold and treated as a special dividend.

The last column of each table shows why I am content to take my curtain call with every reason to be confident that the coming year will prove that the changes I made last year will restore the underlying dividend growth in both portfolios. The only caveat has to be the possibility that the three big share price falls (apart from GLIF) in the IFL are accurately predicting disasters ahead, rather than a temptation to top up: in which case the same sort of surgery which saved the RIRP from its earlier scars in the immediate aftermath of the financial crisis are still available, with similar medium term prospects of success.

Douglas Moffitt, January 2018

RIRP – Flexing the rules now to save for that rainy day

RIRP – Flexing the rules now to save for that rainy day

Three months ago a surprise cut in the dividend of what had been one of my star performers, Interserve, forced me to apply dramatic surgery to the original Rising Income Retirement Portfolio (RIRP)  in order to Brexit-proof it for the inflationary challenges then only just starting to appear.

Three months on and the inflationary pace has accelerated to 3.7% by the highest measure – and I am expecting a peak of at least 5%, confirmed by the fact the come-on 3-for-1 offer of one of my favourite beers at Tesco has just gone up 5%.

Table 1 shows the portfolio is likely to come out smiling.

Table 1 RIRP

The average full year yield on the sums invested is up to 6.4%, 60% up on the original 4% target 10 years ago, and more than twice the highest measure of inflation over that time. The last figure of column 2 shows the shares have already increased their underlying dividends by more than 5% over the previous year even though we are less than half way through the current accounting period. So with the extra bunce of some special dividends, I anticipate the RIRP will resume its original brief of being a low maintenance have-and-hold portfolio.

For most of its life, low inflation means I was able to carry a few failures and sleepers in the RIRP, but rising inflation now forces me to be less indulgent. I shall be keeping a beady eye on companies unable or unwilling to raise their payouts, regardless of their high yields.

Paring out the dead wood

This time I must perform a similar exercise on the newer junior portfolio, the Income for Life, constructed over a one year period designed to deliver at least 5% income rising so as to beat inflation. The first was a deliberately ambitious challenge, and the second is increasingly becoming so.

Table 2 shows that in its second year, and its first year being fully invested, the underlying return on the £100,000 capital was over 5.2%, boosted to over 6% by special dividends and an enforced share sale.

Table 2 RIRP

But just like Interserve in the RIRP, one of my holdings has turned into a cuckoo; and just like the takeover of Alternative Networks forced me to sell a share at a time not of my making, so the Fox bid for Sky is effectively forcing me to do the same. I have always justified my professed indifference to my shares’ capital values with the argument that the value of my share certificates does not pay the bills, but the dividend cheques do. And the nasty small print in the Fox bid is that Sky pays no dividends this year. The sex scandals at Fox are again raising concerns as to whether the UK should consider it a “fit and proper person” to own such an influential broadcaster outright, and frankly I cannot any longer afford to forgo any return on one twentieth of the portfolio.

So entirely aware that I am throwing away the chance of a 5%+ capital gain if and when the bid does go through, I am selling all my Sky shares for a small capital loss.

Building a war chest

To compensate for this I am selling another chunk of the formerly high-yielding UIL, whose big capital gains have actually reduced the return on its current share price to under 4.6%. I am similarly cashing in £2,000 of the investment in De La Rue which still has to generate the dividend growth I want, but which for reasons I find as difficult to understand as UIL’s valuation, has risen by 50% since I bought it; since even I cannot resist banking a £1,000 capital gain to provide a war chest against future possible dividend disappointments.

All this generates nearly £9,000 cash of which I am using £8,000 to buy 4 units of two very different shares, each something of a gamble in their own way.

The first is what I hope will be a solid but unspectacular provider of income which will rise at least to match inflation: HICL Infrastructure, launched by HSBC back in 2006 as the first of what are now many infra-structure companies listed on the stock exchange. The nature of their contracts effectively allows investors a guaranteed inflation-linked return, unless the management lose track of their costs. Dividends have risen from 6p at launch to a target of 7.8p for the current year, bang in line with inflation over the period. Dividends are paid quarterly, which means this year we will only get three quarters of the projected 4.7% full year yield. In keeping with the lessons I have learned late in life about sometimes dipping into capital gains when they seem too good to be true, I am using the De La Rue and UIL profits minus the Sky loss to further boost the “bonus” line, already standing at nearly £500 because of which a welcome surprise special dividend from National Grid last month.

Building in the bonus

And for all my railings about the distortive effect of special dividends, I am buying my second share very much in the hope it will continue the pattern of the past 5 years by further supplementing its above average underlying dividend growth by generous regular special dividends. It is ITV which after some difficult years has found ways to continue to generate viewers and revenue despite the huge changes in viewing habits.

ITV chart

Underlying dividends have increased by two and a half times over just the past 5 years, and the projected percentage yield in the table is based on last year’s basic dividends. But the special dividend last year boosted the yield by more than two thirds. Unfortunately we will get only one dividend in our current year, but I am hoping for a bumper bonus next May.

The table shows we have some way to go to get underlying full year income even back up to last year’s £5,215. I am hoping GLIF will provide at least something to help narrow the existing £129 gap, but in view of the current share price around 14p I am not holding my breath. Clearly this is going to be a year when I shall have to dip into the war chest.

I realise of course that in doing so I am spending the two sources of money which I claim not to want, special dividends and realised capital gains. But when needs must, it is surely a fool who feels constrained by his own dogmas. And to salve my conscience I am pretty sure that by the year end next March I shall not have had to boost the income figures by more than last year’s £828 bonus, which prudent investors should have kept aside for precisely such a rainy day; but which I fully realise most of us will have spent.

Douglas Moffitt, July 2017

RIRP pays double the inflation rate as IFLP demands my attention

RIRP pays double the inflation rate as IFLP demands my attention

As with most new arrivals, the Income for Life portfolio which I launched less than two years ago has occupied more of my attention than I intended. As a result, its predecessor, the Rising Income Retirement Portfolio (RIRP) – nine years old in February – has effectively been ignored for the second 12 months in a row. Again no changes have been made to the portfolio, and this is exactly what was intended when it was constructed: a low maintenance selection whose dividend increases would comfortably outstrip inflation.

To be frank, this has not really been a very demanding target over the past few years, and even though the most recent annual inflation rate for the RPI has risen to 2.2%, as Table 1 shows the fund’s underlying income went up by 5.5% – two and a half times faster.

I no longer include special dividends in the basic calculations, rather treating them separately as “bonuses” because they are so unpredictable: this year’s specials from Direct Line, Glaxo and Lloyds provide a further £468, equivalent to nearly 0.5% on the original investment, but in fact the total bonus sum is nearly £2,300 less than the previous year’s truly exceptional and clearly unrepeatable receipts.

The future will be harder

But life is going to be tougher for the next couple of years. Since June and for most of the coming year, dividends of companies designated in dollars or euros, such as BP, HSBC or Vodafone, or with significant international earnings such as BATs or Reckitt Benckiser, will benefit from the fall in sterling which the foreign exchange markets so obligingly gifted the Brexiteers. But by the same token imported inflation will increasingly start showing through, so I must look carefully at some of the small print behind my funds’ performances.

The last column of Table 1 shows the actual rises or falls in income compared with the year before. The fact the market is around all time highs means the RIRP has unrealised capital gains approaching 40 per cent which means I now need to have pretty good reasons not to weed out shares which have gone ex growth or cut their dividends. The next article in April may see me jettison Pearson, Sainsbury and the two utilities unless they can raise their games.

IFLP beats its target in year 1

Table 2 shows that the junior portfolio, the Income for Life, will complete its first fully invested year in March with flying colours, delivering an underlying yield of over 5.2% on the original capital, usefully above the original 5% target.

There have been a lot of changes to the IFL since the last full table was published 6 months ago. Not only does it now reflect my post-Brexit decision to realise some of the inexplicably large capital gains at UIL and reinvest in what seemed to be the unreasonably depressed Galliford Try, but also the rather surprising year-end takeover of Alternative Networks.

Alternative profits

When I originally bought Alternative Networks for the portfolio in July I was attracted by the rising dividend record on the basis of which I had myself invested when the share price was significantly higher and the yield correspondingly lower and so below the IFL’s initial targets. This was reinforced by the company’s confident forecast of a further 10% dividend increase this year.

I can only conclude the directors suffered a collective case of terminal post-Brexit depression, because they have since unanimously recommended a cash takeover from one of their biggest rivals. A reference to “Brexit uncertainty” is the only new factor I can discern in the lengthy statement of recommendation which makes any sense at all. For all the talk about how the group has created long term value for shareholders, unless – like the IFL – you were lucky enough to buy between the end of May and the beginning of September this year, there is precious little profit for anyone who bought the shares after mid 2013, and losses for anyone who bought during 2014 or 2015 – as I did. The all time high in 2014 was 570p – 70% above the recommended takeover price.

So I think the IFL is very lucky to be able to book a 15.5% profit, even though it is deprived of the forecast £188 initial January dividend. I am applying some of the gain to replace the lost dividend.

I dislike takeover bids for two reasons. They sometimes force me to crystallise a paper loss I might have been happy to live with, as I was with my personal holding based on the dividend and pre-Brexit forecasts. But even when bids crystallise a gain they force me to make reinvestment decisions at a timing which is not of my choice.

I thought about using the Alternative Networks bid proceeds to bring in a new share, but because the portfolio was constructed in the space of 12 months it has never been able to benefit to any significant degree from the multi-year pound-cost-averaging drip investment technique employed to create the RIRP.

Top-ups win over new shares

So I have applied the RIRP rules, and topped up on shares whose fundamentals seem unchanged from when I originally bought them, but whose share prices are either still around or below my original purchase price. To my surprise and delight one of the qualifying candidates was Galliford Try, so my maiden £2,000 investment is now topped up to the standard 5 units, and the remaining £2,000 is split between Connect and Marston’s. All three shares are yielding more than the fund’s current average 5.2%. I have booked the capital gain minus the £188 dividend to the “bonus” line.

The IFL will face the same challenges as the RIRP as inflation starts rising, but with the disadvantage of initially having been forced to invest in higher yielding shares, the corollary to which is normally lower dividend growth longer term. Like the RIRP it also faces a further dividend cut from GLI Finance, but even if GLIF pays no other dividend this coming year than the remaining quarterly to which it is committed in March, the full year dividends from Galliford Try and my other increased holdings already largely make up the loss.

I also admit I quite like leaving a failure in if I can afford it. There are two reasons: sometimes they come right, if you can wait long enough; and meanwhile they are an enduring reminder that none of us gets it right all the time, and should therefore not beat ourselves up too much for our failures.

Douglas Moffitt, January 2017

IFL off to a cracking start

IFL off to a cracking start

Exactly a year ago I launched the Income For Life (IFL) portfolio, which is an attempt to recreate for more recent subscribers the success of my Rising Income Retirement Portfolio (RIRP), now in its ninth year. I had set myself some pretty ambitious targets for the IFL – not least to be fully invested within a year. The result so far is a bit of a curate’s egg, but definitely with more good than bad.

In January I completed investing all my notional £100,000 with twelve top-up purchases, shown in red in Table 1.

378 table1

Although less than £50,000 was invested throughout the full year, dividends received since last April totalled over £2,300 net of basic rate tax. That’s equivalent to nearly 3% pre-tax from a bank on the full £100,000, and more than you are likely to find from any savings institution with the exception of the likes of Bank of Baroda.

Forecast divis at 5% net

Even better are the red figures in the dividend column. These highlight companies which are paying more than was expected at the time of my last article about the IFL in October. However the rises shown for HSBC and Shell are entirely due to the weakness of sterling and could just as easily be reversed this year. Clearly too, these companies’ prospective yields suggest that the market has some doubts about the sustainability of their dividends.

But at the moment, projected dividend income for the 12 months ahead is a fraction over 5% net. And that is despite two partial failures.

GLIF has halved its projected payout, though even after that it is still delivering the equivalent of 5.5% pre-tax interest on the original investment (and over 9% on its current price). My forecast for the coming year’s income includes the reduced payment. GLIF is a useful reminder that although I have now been investing for over 50 years, and writing about it for nearly as long, “even I” still periodically forget that if it looks too good to be true, it almost certainly is. I beat myself up about GLIF quite enough in the January issue, so I will not do so again. I am hoping a progressive dividend policy might replace the previous income-kicker attractions, but will certainly be keeping more of an eye on it than most of the other stocks.

Insurer esure has also disappointed, though here I am partly to blame for nurturing unrealistic expectations. The company’s stated policy is to pay out 50% of underlying earnings in dividends, plus special payments depending on circumstances. I own shares in esure, like all others in both portfolios, and it has provided me with a healthily rising income in the past. For the RIRP, the unpredictably distortive effects of special dividends have been a persistent problem, but I assumed they could only be a bonus in the initial stages of building the IFL.

With esure, underlying earnings are down over 25% this year. Despite paying out an extra 20% of earnings in a (reduced) special, actual dividends for the past 12 months are down from 16.8p to 11.5p per share. The forecast income for the year ahead is based on the actual dividends declared during the past 12 months.

Mixed results from drip-feeding initial capital

Paradoxically esure is one of the 7 shares out of my 20 to show an overall capital gain for the year. As regular readers will know, so long as dividends are maintained or increased, I regard capital movements as largely random noise – unless I want to rearrange my holdings, which by and large it is my aim not to do.

In taking 9 months to become fully invested – instead of the several years I took to complete investing the funds for the RIRP – I had hoped to reap some of the benefits of the pound cost averag-ing which had served me so well with the RIRP. In retrospect this was a mixed success, to really benefit from pound cost averag-ing you need to use a longer drip-feed period than 12 months – ideally over a full market cycle.

I started the IFL with the FTSE flirting with its all-time highs, around 12% higher than now, and if I had invested all the cash at the start, all my current selections would have cost more then than my average buying price apart from esure and Manx Telecom. For me this is a clear win – the lower the average purchase price, the higher the resulting yield. My only regret is that having restricted myself to only dealing once a quarter when the articles appeared, I was unable to benefit from the severe shakeout in mid-February as I might otherwise have done.

On the other hand, almost inevitably, having started with the index so much higher than now, our shares are on balance currently worth less than we paid for them, as Table 2 shows.

377 table2

If this worries you, you should not be contemplating following my sort of strategy – indeed arguably you should not be buying shares at all. But a typical fund manager would claim that a fall of under 5% against a market decline of 12% is something to boast about. In my case I am just sad I am not launching the fund now so we could buy all the fallers at today’s prices. Someone doing just that would get a prospective yield of nearly 5.5%; if they bought the whole portfolio at current prices the prospective yield is 5.25%.

RIRP income motors ahead

The aim of the IFL is to be able to sit back and watch the dividends roll in at an increasing rate so as to keep overall income well ahead of inflation – as the original RIRP has done. In fact the RIRP is now delivering in spades – its underlying income is already projected to rise by over 3% in the year ahead. Statistically the star dividend increases – of over 100% each – come from two legacy failures, Lloyds and RSA; but both of course are starting from only nominal bases, and still contribute little in absolute terms to the fund’s total income. Legal and General stands out with a 13% projected rise already under its belt, bringing its return on the original capital invested to a splendid 17.5%. Together with BT and Interserve, consistent above-average dividend growth from these three shares mean they yield an average of 12.75% on the amounts originally invested. For income-focused investors, it is figures like these – not paper gains – that are evidence of success.

My quest for as much income as possible in the first 12 months from the IFL means that some of my selections may not possess the long-term inflation-busting potential which I need, and I fear I will have to do some unwelcome tinkering over the year ahead to have any hope of delivering underlying growth matching the RIRP.

Take steps to avoid extra dividend tax

Additionally, shareholders face a googly this coming year: if the value of your dividends held outside an ISA or SIPP comes to more than £5,000, you will be liable to pay the Chancellor’s sneaky 7.5% dividend tax surcharge announced in last year’s Budget. It will not actually become payable until end-January 2018. But even if you had to give the Chancellor 7.5% extra on the whole of next year’s projected IFL income, what you are left with is the equivalent of 5.8% from a bank. I believe it will in fact turn out to be higher than that after another year of rising dividend announcements – assuming no nasty surprises from HSBC or Shell. Or anyone else!

You can now read every article on the RIRP and IFL portfolios from inception at RIRP.co.uk.

First published in The IRS Report on 2nd April 2016.

Successful Rising Income Fund

Successful rising income fund makes first BP purchase

Successful Rising Income Fund. In my update last month I suggested that as we approach becoming fully invested, in an ideal world we should merely be routinely reporting on dividend increases in excess of the rate of inflation — though I cautioned in the non-ideal world we inhabit this was unlikely to be literally the case.

But I am able to report that since the last full table was published at the beginning of September, that is (almost) exactly what has happened. Between the end of August and this issue’s publication date, 12 of the 16 shares have paid out, on average nearly 7.9% more than the same time last year, and only one of them, RSA, has disappointed with a below-inflation increase of only 2.1%.

The story from the three shares still due to pay out in February, the last month of our accounting year, is a bit patchier. FirstGroup has failed to increase its forthcoming dividend at all, perhaps sensibly drawing in its horns following the shambles over the new rail franchises. The market fears a rights issue, and the consensus broker expectation is for a dividend cut. Brokers’ forecasts are as often wrong as right, but their view is reinforced by the theoretical double digit historic yield available at the current share price.

United Utilities on the other hand will indeed be paying out 7.2% more than this time last year, but still has to implement a further 4.7% increase before it gets back to what it was paying in 2010 when it “rebased” (= cut) its dividend in anticipation of the new regulatory regime.

Similarly Vodafone’s forthcoming interim will be 7.2% up on last year’s, but my actual income next month from this share will be 53% less than this time last year, because the company is unable to repeat last year’s special 4p dividend, paid from their first and so far only dividend from their minority holding in Verizon Wireless.

If I look at this year’s income compared with the actual receipts a year ago, the Vodafone reduction cuts the average gain for the 15 shares from 7.9% to 5.3%.

Trouncing the RPI

This of course compares well with the 3% rise in the RPI for the latest reported 12 months. As the table shows, when the earlier dividend increases this year are also included, the actual percentage return on funds invested rises from 5.5% to just under 6.1%, a rise of over 10.5%.

As usual around year-end, I have also reviewed the fund’s capital performance. The results are shown in the table. As I have explained previously, capital performance is of entirely incidental importance to me so long as my dividend income keeps rising. My sole measure of success is securing an income stream which rises faster than inflation, and any capital gain is a bonus.

Some new subscribers, and others who were not immediately convinced of the sense of this sort of approach, have asked how relevant these articles can be to them now, since they missed all the earlier benefits of pound-cost averaging when the market was plummeting throughout 2008-09. The honest answer is that they have also avoided some of the early casualties: I make no claim to infallibility and the going has been rougher at times than even my 45 years of investing experience had led me to anticipate.

My original minimum starting yield was 4%, and no less than 14 of the existing shares still yield at least that to new investors, though the capital increases of course mean they cannot buy in to our 6.1% overall average return on capital. But after another 5 years there is no reason why investors starting their own RIRP now should not have seen this sort of growth.

Search for a new RIRP stock

We started out with a notional fund of £100,000 to invest. Originally I aimed at “up to” 20 shares, which implied a maximum holding of five £1,000 units. The rules have been amended since then to allow for larger unit holdings, and with £7,000 still to invest, I am now faced with the choice of increasing 7 of my existing investments, or adding a new one to the successful rising income fund over the months to come and/or topping up some of the others.

Successful Rising Income Fund
Rising Income Retirement Portfolio dividend income to date

This portfolio makes no claim to any sort of sectoral balance, but is instead made up of what I hoped would be my best choices from my own much bigger personal selection of shares. I have spent more time than I thought I would need to on the selections, combing through my personal holdings, looking at companies as diverse as defence, drinks manufacturing, household cleaning, health products and spread betting, but I find that the fundamentals of various companies which I was happy to buy several years ago have changed to the point where I could not justify adding them to this portfolio.

I was coming to the point of concluding I could not in fact find anything better to invest in to meet my very particular criteria but finally found one. I need to bend the rules, though, and include a company which recently spoiled its long-term record of rising dividends with a one-year suspension, and then resumed payments at only half their previous level.
One of my basic criteria for a successful rising income fund is that a company must normally have a long-term record of uninterrupted dividend growth.

But rules are not straightjackets and for various reasons the portfolio already contains Legal & General and United Utilities, both of which have still to get back to their previous best, and Lloyds, which has yet to resume payment at all. One reason is that once such companies resume payment of dividends, the growth rate is often above average as they try to restore their reputations.

Successful Rising Income Fund
Rise in capital value of the RIRP

Looking for dividend recovery

The circumstances of the share I have chosen are almost unprecedented. The company is BP. I have owned shares in this company since the 1990s, and retained them against my RIRP rules after they suspended their dividend payments after the Gulf disaster, partly because I anticipated a faster recovery than has been the case.

Longer term I still think BP is one of the best of the oil majors. After settling all criminal claims with the US government for a few billion more than it had provided for, it has said this settlement puts it in a position to “vigorously defend itself” against future civil claims. As a result I see no reason why it should not eventually recover completely. In the last quarter it paid out 9c a share, 28% more than when it resumed payments at the end of 2010.

I suspect the slow progress to full restitution is a combination of prudently conserving cash against its existing payments schedule spread over several years, and a canny political statement so as not to be open to accusations of “rewarding” shareholders too prematurely. So paradoxically the cut dividend provides an excellent opportunity for new investors to get in with a prospective yield of nearly 5%.

Successful Rising Income Fund
BP dividends versus RPI

As a predominantly US company the dividend is expressed in US cents, so its sterling value is subject to exchange rate fluctuations as the chart below shows. But assuming the 9c is maintained each quarter, at current exchange rates the prospective return comfortably beats my starting yield hurdle (4% increased by 17% RPI inflation since 2008, about 4.7%): the first dividend is due in March. So the portfolio makes its first £1,000 purchase.

Editor’s note: from now on, we will publish quarterly updates to the RIRP, but Douglas Moffitt will post web updates if his rules necessitate any urgent action in between.

First published in The IRS Report on 12th January 2013

Double digit dividend growth

Double digit dividend growth

Double digit dividend growth. Since my last article two months ago, exactly half the companies in the Rising Income Retirement Portfolio (RIRP) have announced dividend increases averaging over 7%, more than twice the latest year-on-year inflation rate, my only measure of success; but my prediction for my full year’s income before this month’s purchases was down by £68.

The culprit is something I railed against recently (Issue 330) — so-called “special” dividends. I dislike them for precisely the same reasons I concentrate on dividends rather than possible capital profit (or loss): relative certainty.

Two companies in my list paid them this year: GlaxoSmithKline and Vodafone, and it now seems pretty certain that Vodafone will not pay one in my current accounting year, which runs to the end of February.

Vodafone’s 4p a share special dividend last February was the result of their receipt of a maiden dividend from their minority holding in Verizon Wireless: Verizon has said that will not be repeated this year.

The result is that the projected Vodafone dividend for the RIRP’s current accounting year falls from 13.52p a share to 9.52p. On our holding of 3,624 shares this costs us over £145 and is not what a portfolio designed to deliver rising income should be seeing.

Two options for top-up

The fact that all my other holdings have been declaring healthy increases means the overall return on capital this year will only fall from 12% to 10%. Few salaried people will see rises of over 10% in their income for this year, which maybe just shows what high standards the RIRP has set itself. But it still leaves me pondering the best way to make up the “lost” ground.

There are in fact only two of my existing stocks, FirstGroup and RSA, in which I can now invest new money at a higher yield than my projected yield of just over 6% for the year ahead. That is because most of the RIRP’s shares, which as the table shows produce mouthwatering yields on the original capital invested, have been rewarded with comparable rises in their share prices — which I neither show in the table nor particularly care about.

My investing equivalent of “taking care of the pennies” is my belief that if you take care of the dividend growth, the capital value takes care of itself.

So now I have to decide whether I trust my rules sufficiently to make FirstGroup my biggest single holding with yet another purchase yielding a prospective 9.6% on new money at the current price, or whether I should heed the market hint that the bigger the yield, the greater the risk.

My rules stipulate that if the fundamentals have not changed, if a share falls below my average purchase price to date, I should top up to the maximum automatically. My current maximum is seven £1,000 units, so I have a get-out if I want one.

Double digit dividend growth
FirstGroup should help RIRP towards double digit dividend growth

Keeping an eye on director share sales

And I could argue the fundamentals have changed too. Since my last purchase, FirstGroup has wrested the West Coast Mainline contract from arch showman Richard Branson’s Virgin, but at more than twice the price he bid. He in turn has thrown a hissy fit, declaring FirstGroup’s bid will bankrupt them; FirstGroup have responded that Sir Beardie is just peeved because he can no longer go on “cashing cheques on Necker Island like there was no tomorrow”.

I have no more idea how to run a railway than Mussolini, and have already been stung once as a shareholder in National Express who famously overbid for the East Coast franchise which they eventually surrendered to avoid incurring ongoing losses. But I judge FirstGroup’s railway and general management expertise to be somewhat ahead of National Express, and their perception of what is a fair shareholders’ return may be more modest than Sir Richard’s — though in his case no one really knows what he was making from his rail interests because of his arcane corporate ownership structures.

The one thing that worries me about FirstGroup is the relatively small size of director shareholdings — only two directors have share stakes in the company worth more than £250,000. Although director dealings are frequently unreliable guides, I shall be looking carefully for any evidence of early cashing in of FirstGroup options in future.

So I am trusting my rules to the extent of establishing a new maximum holding of 8 units with a further £1,000 purchase of FirstGroup in the hope of double digit dividend growth. I am not increasing my holding of RSA, partly because we are too late for the November dividend, and partly because it has only been raised by 2%. Instead I am buying another unit of Interserve in time for the 6.6% rise in its interim dividend next month. These purchases have the effect of restoring my projected rate of increase in yield for the year ahead to over 11%.

First published in The IRS Report on 1st September 2012.

Dividend strategy brings more income

Dividend strategy brings more income

Dividend strategy brings more income for RIRP. Since the usual slow start to our accounting year, in the last two months the dividends have started rolling in — over £1,700, compared with under £230 for March and April. As the table shows, one third of the way through the Rising Income Retirement Portfolio’s accounting year we are well on our way to the projected full-year revenue of nearly £5,600, which will represent a 6.15% return on our capital invested so far, an 11.9% increase on last year. Even before the latest reported falls in the annual inflation rate, we were clearly in no danger of missing our sole measure of success: to increase our income each year by more than the rise in the RPI or the CPI, whichever is the greater.

Our current year projections are helped by the fact that no less than 5 companies have reported their results since early May, and have raised their dividends by an average of over 8%, shown in bold in the table below.

Dividend strategy brings more income for RIRP.
Dividend strategy brings more income for RIRP.

All the trading statements are as optimistic as can be expected with the continuing uncertainties around the euro; most of the RIRP represents shares of companies supplying what are regarded as nowaday’s near necessities of life, and so should manage to preserve their share of the national cake, short of a terminal collapse of capitalism which I judge to be only a remote possibility.

Consistent dividend growth sustained over a period of years can produce results which start to look unbelievable. When I check what is now my self-select ISA, I still look with delight each time at my holding of SSE inherited from an investment made years ago by Halifax’s managed ISA before I retired and had time to take control of my own investments. I hold 400 shares with a book value of just over £1,000. This coming year they will yield me £320 in tax-free dividends, equivalent to over 50% pre-tax. Just as I hope to live long enough to witness the second coronation of my life and the opening of Crossrail, so I hope to live the further decade or less which it will take for SSE to be yielding me 100% pre-tax or more each year.

Buying more Sainsburys and GSK

This month I continue with my notional £1,000 unit purchases of companies meeting my yield criteria where I do not yet hold between 5 and 7 units, or whose share price stands below my average purchase price to date. This means another unit of both Sainsbury and GlaxoSmithKline.

The table also contains a small correction to the dividend information for Bankers Investment Trust. I owe them an apology for previously understating their dividends, albeit only by £10 for last year. I rely heavily on the website Digital Look for dividend information and have generally found it reliable, but for some reason which they have not yet been able to explain, this has not been the case with Bankers. So I will rely in future on the information on the trust’s website, now reflected in last year’s receipts and this year’s projected payment. I note without crowing that even with the adjustments their payouts this year “only” look like being up some 5%, and even that is not fully covered by current revenue, a luxury I am not allowed.

Dividend strategy to defeat rising inflation

Quite a few IRS Report subscribers have joined us over the past year, so the Editor has suggested that I should set out again the basis on which the RIRP has been constructed. It is based on my own investment philosophy, and my own investments — my own portfolio contains all the shares shown here, designed to provide me with an income which protects me against what my lifetime experience suggests is my biggest risk in my retirement: inflation. It aims to do that by illustrating how owning up to 20 shares can deliver that with minimum maintenance once invested.

I am a “to have and to hold” investor for two reasons. One is that the only people who predictably make money out of constant buying and selling are the brokers; and the second is that, while I currently know I am more than capable of constructing such a portfolio with the proceeds of the sale of my private companies in early 2008, I want investments which will largely take care of themselves if my own mental powers start fading, as they may well do if I live as long as one of my parents.

Why I use drip-feed buy method

Key to the construction of the portfolio has been the principle of drip feeding the investment cash, which is part of the growth dividend strategy. In its fifth year the portfolio has still only invested around 90% of its notional £100,000. This is because after nearly 45 years writing and broadcasting about finance, one thing I have learned is that I know that I am not clever enough to reliably call market tops and bottoms — and have yet to find anyone else who can. An example of what this means in practice is shown in the panel and chart below.

KEY POINT  How the RIRP drip-feed system works
When the RIRP made its first investment in FirstGroup exactly two years ago, the shares stood at 375p, but by the time of my fifth purchase the price was in the low 320s. But as I did not perceive that the fundamentals had changed I was happy about this: it reduced my average purchase price to 361p, and had the effect of increasing my prospective yield from 5.5% to just under 6%.
In 2012 the market took fright at the triple whammy of squeezed consumer spending, reduced government transport subsidies and question marks over the future of their rail franchises. This gave me another buying opportunity after I decided to hold fewer than 20 shares, and raised my maximum investment in any one share to 7 units. None of these threats was unknown when I originally invested, nor to the board who have maintained their commitment to raise dividends by 7% each year, at least till 2013. The prospective yield on the last tranche of my investment was over 10%. This suggests the market does not believe the yield is sustainable, but Mr Market is not always right.
Dividend strategy
How RIRP staggered purchase of FirstGroup

So drip feeding rules out my emotions — there is a lot about this in the SPI Lesson Building Capital from Income. Or at least that is what I thought I was doing until the Editor referred me to some of the less unreadable works on behavioural investing. He suggests that what I am doing is avoiding “fear of regret” — concentrating on dividends means I do not give myself a hard time if my shares go down, or for not buying more if they do go up, or for not taking my profits at the top.

He may of course be right. But all I know is this. When I do my shopping the checkout till girls are not interested in me showing them a share certificate for a share which has doubled. What they want is the proceeds of the dividend cheque.

First published in The IRS Report on 7th July 2012.

Income boost through new RIRP purchase

Income boost through new RIRP purchase

Income boost through new RIRP purchase. This time last year I drew attention to the main disadvantage of relying on shares for income, as I do with the Rising Income Retirement Portfolio (RIRP): the often significant fluctuations in monthly receipts. This is because of the bunched timetable in which most companies declare their results and pay their dividends. As an extreme example, the payments the RIRP received this March and April represent under 4% of the projected income for the whole of the coming fifth year — see panel below. This leaves certain times of the year in need of an income boost.

KEY POINT  How the RIRP works
The RIRP was launched in February 2008 with up to £100,000 notionally to invest and a target yield of 4%. The aim is for the portfolio to contain between 10 and 20 shares when it is fully invested.
Purchases are in units of £1,000 over a period of time, to benefit from pound cost averaging and to smooth out market cycles. Additional units are bought so long as dividends are maintained or increased and the prospective yield is over 4%.
The only measure of success is to grow the income by the greater of the percentage increase in the CPI and the RPI.
The fund should require minimal maintenance once fully invested. For this reason, large capital profits are actually unwelcome, since they involve re-appraisal judgements and action. (See IRS Report Issue 315).

I am afraid some of the changes I have made over the past year have actually worsened this statistical disadvantage.

I have been reducing the RIRP’s holding of the RSA Preference shares, which really should have no place in a portfolio designed to generate a growing income. The investment was made at the depths of the 2009 market crash, and the idea was to make up for the loss of income from the two bank stocks which we then held and which cut their dividends to zero. My expectation was that bank dividends would have been resumed well before now, and also well before the portfolio was over 88% invested, as it is now. (Readers will note that I have since topped up the Lloyds holding, and sold Barclays.) The RSA holding drags the portfolio down in two ways: firstly by providing no growth in income, and secondly by providing an above-average yield. This means that when I sell part of the RSA holding, I have to run faster to make up the lost income.

The effect is shown in the RIRP’s income account for the first two months of its accounting year. The table shows we have only netted a little over £200 since the start of March: this time last year we had received over £300, the difference being dividends of £240 from the 5 units of the RSA Preference we held then. But at the risk of more transitional grief in October, when the next interest payment would be due, I am selling the remaining two RSA units at some 10% more than I paid for them.

Income boost through new RIRP purchase
Income boost through new RIRP purchase

The reason that I am relaxed about losing this income is that my projections for the year ahead — based on dividends already announced for my current holdings — show I will more than make up the loss of October’s preference income through growth in dividends from my equities, and still end up with another increase of more than 10% in the yield on my sums originally invested, from 5.5% to over 6%.

This projection includes SSE’s recent guidance that after the 7% rise in the interim payment we have just received, we can look forward to a further rise of around 6% in the final dividend in September. So I am using half the proceeds from the sale of the RSA Prefs to buy a further tranche of SSE at a book value of £1,000: I explained my reasons for this method of accounting in Issue 315. The RSA profit means I can credit the portfolio with 84 SSE shares, instead of the 75 which £1,000 would have bought me in the market.

Another GSK top-up

Similarly I am topping up with another £1,000 unit of GlaxoSmithKline before it goes ex dividend again next week. Its next payout goes up 6% despite first quarter results slightly below expectations.

I was feeling pretty smug about the RIRP’s projected achievement of a 50%+ increase over my initial yield target 4 years ago until I read that dividends from FTSE listed companies jumped 25% in the first quarter, a new record for this time of year. The rise was distorted by a lot of large special dividends: without them the underlying rise was only 6.6%. But I too have benefited from special dividends from both Verizon/Vodafone and Glaxo, so it seems that I am not doing as much better than the market average as I thought. Still, this should also be irrelevant. The RIRP is an investment for life, not for a few quarter’s statistics, and so long as income growth remains well ahead of inflation, I shall live comfortably and sleep well.

First published in The IRS Report on 5th May 2012.

Rising dividends from my RIRP strategy

Rising dividends from my RIRP strategy

Rising dividends from my RIRP strategy. Since the last article on the Rising Income Retirement Portfolio (RIRP) appeared three months ago, there has been a longer gap than usual, so there is a lot of catching up to do. Most of it is highly satisfactory.

The RIRP ended its fourth accounting year at the end of February with a flourish, as shown in the table below. Another £700 worth of dividends in the first two months of 2012 brought the dividend income for the year up to the projected 5.5% return on capital invested at year-end, a 14.5% increase on last year’s yield and way ahead of any measure of inflation during the period, and since inception.

Rising dividends from my RIRP strategy
The rising dividends show the value of my RIRP strategy

Every one a winner

That is what the fund is all about, and I am reassured to report that every company making an announcement during the past three months has indicated rising dividends; higher payments than previously. The figures in bold in the dividend column show the companies concerned, representing more than half the shares in the portfolio. Insurer RSA negated ill-founded market rumours of a possible cut, probably based on an uninformed assessment of their exposure to euro sovereign debt.

The last column shows how the actual dividends paid by each company during the reporting year compared with the same payments a year previously. The 10% average increase is lower than that for the RIRP because the fund has not been fully invested and often times its purchases cleverly around the ex-dividend dates so as to maximise the percentage value of its first dividend receipt. Two things to note:

  • The huge rise by Legal & General only takes the dividend a little above the 2007 level from which it was cut shortly after we made our first investment. This serves to offset the cut which United Utilities inflicted on shareholders last year when it “rebased” its future payments in the light of the latest Ofwat constraints. I should have chucked UU out when they announced that, and may yet revisit their status as the lowest-yielding share in the portfolio.
  • Bankers Investment Trust “only” raised its dividends by a little over one third of the RIRP average. The investment trust is included at the editor’s request to reassure us all that the RIRP is not an unnecessarily arcane reinvention of the wheel. Bankers is the only investment trust I could find which has as its target precisely the same aim as the RIRP: rises in dividends at least to match inflation. So far clearly it is: “Advantage: RIRP”; but the investment trust has been around a lot longer than the RIRP so it is far too early for me to crow.

The most pleasant news is of a payout by the Scheme Administrators of WFSL, part of the bankrupt Cattles company. Pleasant because it rewards a lot of work by myself and others in the dissident shareholder group that goes some way to establishing a principle not previously clear in UK law — that shareholders who are misled by information published by companies and signed off by auditors may have an equal claim with other creditors, such as the banks, in any subsequent Scheme of Arrangement designed to salvage something from the wreckage.

The Administrators have accepted in full the face value of claims under £20,000, such as the fund’s. Payments of around 27p in the pound are expected over up to six years, or a one-off lump sum settlement at a 10% discount. In view of the relatively small sums involved this clearly makes sense, and is what I am notionally accepting on behalf of the fund. The £1,079 payment compares with the £24.23 previously banked from accepting the derisory 1p per share offer which Cattles’ lawyers had advised the board was all they needed to pay to get rid of the shareholders. This moral, if not legal, fraud very nearly succeeded, but for the actions of the dissident shareholder group.

Speculating with Cattles windfall

For me the payout is pleasant for another reason: from the next issue I can remove once and for all the continuing reminder in the table of this disastrous investment (I will personally have lost a five figure sum, and at least one elderly private shareholder lost millions). The fund’s £4,000 investment was written off long ago, which means in accounting terms the payout represents a windfall. So I am going to depart from my normal conservative straightjacket and do something irrational in pursuit of rising dividends.

Our continuing Lloyds holding is the only other legacy of the early casualties in the portfolio — all the others were exited without loss. I am using the Cattles payout to top up the Lloyds holdings at no apparent cost to the fund, and so significantly reduce the average cost of the Lloyds shares we hold. This follows the accounting principles I apply in dealing with reinvested capital profits.

The purchase itself is irrational because averaging down for its own sake is usually a recipe for disaster (as contrasted with my normal policy of buying at lower prices if the fundamentals have not changed), and I frankly have less idea now what the prospects for the merged BOS/Halifax/ Lloyds/TSB behemoth really are than when I put them in the RIRP before the awful financial truths were known. The top-up is a straight gamble on Lloyds eventually coming right and the government getting out at a profit.

My only disappointment is that another company has followed Vodafone in declaring a special dividend. Glaxo is supplementing its highly satisfactory 7.6% rise in underlying dividend payments with a 5p special dividend, representing the proceeds of the sale of the company’s North American OTC brands in January. This will bring the payouts for the twelve months to mid-April 2012 more than 15% above last year’s.

But because the RIRP has only recently started investing in Glaxo it won’t feel or look like that to us — indeed our first two purchases were ex-dividend, so as the table shows we actually get nothing from Glaxo until the April payout. But with only two £1,000 units invested in Glaxo so far, I am making a further purchase at a price only a little above our average to date, though there will be no income from this latest tranche until the July quarterly payment.

Give me more regular divis!

So why should I be complaining? Of course it is nice to have more than you expected when you invested, but from a purely selfish professional standpoint, unless the special dividend is repeated next year too, I am likely to have to report the RIRP starting with a higher income from Glaxo in year 1 than it will get in year 2 — not at all what the portfolio is supposed to be delivering.

Similarly Vodafone is not certain of getting a continuing dividend from its joint venture with Verizon, which funded their recent special dividend and which in turn boosted the fund’s income from them by over 50%. Of course in an ideal world I should regard both the specials as just a little bonus, and lie back and enjoy them. But such payouts introduce an unwelcome element of unpredictability as to what I might expect in future, and one major virtue of the RIRP for someone of my essentially cautious — some may say lazy — disposition is its relative predictability.

Two more top-ups for rising dividends

Hunting for rising dividends meanwhile, I see no reason not to add another unit to our holding of Sainsbury, although now trading above our average purchase price, but still yielding over 4.8% on new investment. And the market continues to punish FirstGroup, knocking the shares back savagely after its latest trading statement. This showed lower than expected revenue growth from the bus franchises in Scotland and the north of England, which accounts for 60% of total revenue, and with lower subsidies and rising fuel costs this means margins will fall next year by one third. But the statement also says that the group continues to drive cash generation to support capital investment, debt reduction and dividend growth of 7%.

The company has told brokers that it regards the dividend as a long-term statement of how the board feels about the company and its ability to turn around the under-performing businesses. So, admittedly with some trepidation, I am making a top-up investment at 225p in the hope they will succeed, not least in retaining the Great Western rail franchise which expires in April next year, where they face stiff competition.

Assuming the directors mean what they say about the dividend, the yield on this new investment will be a shade over 10 per cent. But remember the old saying “the higher the yield, the greater the risk.”

First published in The IRS Report on 7th April 2012.

Increasing yield for RIRP and a Cattles bonus

Increasing yield for RIRP and a Cattles bonus

Increasing yield for RIRP and a Cattles bonus. As regular readers will know, the capital performance of the Rising Income Retirement Portfolio is very much of secondary importance to my principal objective: securing a dividend stream which rises by more than the cost of living through increasing yield. But once a year, mainly just out of interest, I check to see how the capital is doing.

When I wrote a year ago, the portfolio was showing a 10% gain, helped by the traditional Santa Claus rally which had taken the FTSE above 6,000. Despite another seasonal rally this year, the index still needs to climb another 7% or so to wipe out its losses for the year.

Yet again the portfolio is still showing a 10% profit on the book value, which itself increased by investment of some £14,000 new money over the year. Together with the projected 14.5% rise in the increasing yield from last year’s 4.8% to over 5.5% this confirms my long-held belief that if you concentrate on the dividend income stream, the capital eventually takes care of itself.

From now on, in response to reader requests, I am adding an extra line to the table to show the latest reported annual increase for the higher of the CPI or RPI, set against a calculation of the increase in this year’s projected fund yield against the previous year’s.

In the last article at the beginning of November I complained that it had been a fallow period for company results and dividend increases, but the following two months have more than made up for that. Six companies — whose dividends are shown in bold in the table — have announced payouts up by an average of 6% over previous payments or expectations. Vodafone is to pay nearly two and a half times what was paid out the previous year, primarily because of the special 4p dividend representing their maiden receipt from their joint holding in Verizon Wireless.

Increasing yield
Increasing yield in the Rising Income Retirement Portfolio

This month I am making further top up purchases of Sainsbury whose price is still only a fraction above our average purchase cost, and GlaxoSmithKline whose price is up nearly 10% since our first purchase, but still yielding over 4.7% on new money.

Cashback from Cattles

And Santa has brought a little Christmas cheer for long-suffering holders of Cattles shares. In a rare example of successful shareholder power, shareholders who had ignored the company’s misleading guidance on how to vote on the 1p a share offer and subsequent Scheme of Administration, and who instead followed the guidance on the dissident shareholder website and made claims under the two creditor schemes, have succeeded in forcing the Scheme Administrators to consider these claims seriously.

Investors who claimed for losses of less than £20,000 are being offered between 27% and 30% of the value of their claim, paid monthly from February or March, or a lump sum one-off settlement of some 10% less. I suspect the lump sum offer will have been calculated very much to the company’s advantage and would myself opt for the drip feed. But so far as the RIRP is concerned, for ease and speed, when the lump sum is quantified I will accept the lump. At well over 50 times what the company hoped it could fob shareholders off with a year ago, I consider this quite a result, and thank all readers who sent in proxies as suggested in support of the dissidents. There may yet be more to come if Cattles is successful in its legal action against the former auditors.

Disturbingly, however, the administrator is not admitting any legal liability in the current offer, and just before Christmas shareholders with claims of more than £20,000 were sent a series of tiresomely nit-picking supplementary questions with an arbitrary deadline to respond by January 10th. By the time you read this the dissident website http://cattlesshares.co.uk hopes to have guidance on how to respond without putting your legal foot in it.

The next feature on the RIRP will be one month later than usual in the April issue.

First published in The IRS Report on 7th January 2012.