Record global dividends but is UK honeymoon over?

Record global dividends but is UK honeymoon over?


Good news that global dividends paid to investors hit a new record in the third quarter. This was $431billion according to Janus Henderson’s latest research, with 88% of companies increasing or holding their payout rates (84% in the UK, though the overall rate dropped in fact, as miners cut their special dividends from before).

Dividends pay shareholders to use their capital and are created from the real underlying businesses they run and from the profits they make (remember the opposite is losses!)

As our clients will know, we like dividends, as they are reliable in general terms (especially from a very diversified strategy) and should keep rising as companies never pay all their profits but conserve some for growth and the future etc.

Meantime the Prime Minister denies the Budget is to blame for the undertones increasing mortgage rates… hmmm… not if you read the runes of Government Borrowing costs (say 10-year Gilts), Sir Keir. The Budget doesn’t seem to have stabilised the Economy at all either if the latest flat growth figures and worst, most pessimistic economic confidence figures since the pandemic attest too. The Honeymoon (if there was one) seems over sadly. At the end of the day, if you don’t understand what economic policies can do to the Economy or you handle things clumsily, then it is a very dangerous thing indeed, as Liz Truss also found out (though Gilt yields at their worst with her were a whole 1% lower than now). Whilst the Dollar has been strong too, the Pound has slumped further – down 7% from the end of September at its worst, before bouncing off the bottom.

And how sad to read the inevitable (based on what we had seen already) about Captain Tom Moore’s Family and the related charities. Avarice, temptation and fame all conspired to create the dreadful position we now see when in simple terms, where was the integrity? Where was the honesty? Too many people just don’t seem to be able to act within a moral compass, one which (at Christmas especially) still recognises none of us is perfect but whereby we know ourselves well enough to trust ourselves, in our financial dealings, let alone other areas of our lives. Where were the independent trustees, or others in the whole processes and why did it take so long for the corruption to surface, or was the media fame something frightening others from criticising what had started-out so genuinely?

Yes, we must scrutinise things too and not everyone is out to cheat everyone else but yes, there are too many who see an opportunity as one for personal enrichment. That can go for close friends, family and work colleagues too, let alone unscrupulous salesmen and even professional advisers putting their own best interests before those of their clients.

If you have a good set of trustworthy advisers who you know look after you and your best interests, then cherish and appreciate them very much! To endorse that… well done Felix for yet another appearance in the Daily Telegraph’s Money makeover!

‘I have five years to build a retirement pot from scratch – can I do it with £1m?’

Greater Fool Theory

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Mr Neil Woodford has reappeared, with commentary. As clients will know, we didn’t have any of his funds but his latest comments do resonate. Effectively, when certain stocks and markets become so over-priced where they leave all concepts of ‘valuation’ behind them, investors are relying upon the ‘Greater Fool Theory’. In simple terms, if you pay a high price for something and well over its intrinsic ‘value’, then for further advances you are relying upon a ‘greater fool’ than you to pay even more down the line.

Investors in the US majors and indeed global index-trackers (with over 70% of their assets in the US) may do well to recognise this. As I have said before, most investors in these stratospherically-priced stocks have no concept of where the ‘true’ value might lie if there was (when there is?) a major sell-off. That is very dangerous and prices can then go way below any principle of fair valuation which is a very long way down from ‘here’ regardless.

This resonates well with Tom Stevenson in the Telegraph last week – ‘Some of the dramatic share price movements in recent weeks suggest the markets have taken leave of their senses. A kind of madness has taken over when excitable day traders blithely admit they are ‘investing’ large sums of money without the foggiest notion of what a company does or even the basics of valuing its shares. ‘No doubt this frenzy will not last but it is frustrating to sit on the sidelines when others are making massive sums in front of your eyes by simply riding the waves.’

This was not this year but just before the Dotcom bubble bursting. The Nasdaq (US Tech market effectively) fell by over 80% in two-and-a-half years. It is as highly valued on fundamentals now as it was then.

Good news/bad news

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Last November, a Private Equity Trust we had been buying cheaply (and which had continued falling afterwards…) troughed at £1.42 despite the value of its assets and the colossal discount the share price represented to those assets. Since then, it has almost doubled, with just one piece of good news as it sold one of its assets for a good premium. We’ve enjoyed a very healthy income (present dividend just under 5%) and still priced at a deep discount so we are content to keep Petershill. Yes, we could easily have been criticised for buying a stock which fell as others rose but as they fell, we kept averaging-down as the arguments to us became even more compelling.

Conversely, we have been holding Gore Street Energy for a little while. This was floated at the height of Green euphoria but we didn’t support it. I have spoken about it before. It is doing everything it said it would but the shares are unloved and have fallen again, despite good news on projects and contracts. It’s very much doing its bit for the Planet.

However, despite what is now a very attractive income yield of 13%, we’re losing on our stock, one we have increased in priority the cheaper it became. It has plumbed under 50p which is down almost half from its temporary December 2023 spike, excluding income. We continue to believe in the story and the valuation of assets which stands prospectively at over £1.07 per share. It is still frustrating in the short-term!

Here’s another one – we don’t own (yet?) – HydrogenOne Capital Growth Fund – all the right principles, the shares floated at £1 in 2021 raising £129million, hit £1.20 on the Green/ESG euphoria and now languishes at under 24p having slipped as one of its investments went belly-up (knocking 8.4p from the asset value) but even then, despite the latest net asset value of £1.01. If you believe in the principles and with the good news in other segments it owns percolating through… these must surely rate a ‘buy’.

However, it is an interesting tale of hype today and reality tomorrow and I wonder to what else that can be applied today. Just think though, if (when?) the shares return to their asset value that would represent a capital increase of 321%. Whilst it is rather unrelated… perhaps it is prescient to consider the difference between good environmental ideas and their financial consequences – as some owners of homes with ecological insulation have found to their cost when bugs decide to invade and chomp, chomp it to death… Multi-billionaire who discovered her £32m Notting Hill mansion was ‘infested with millions of moths who ate her expensive clothes and wine’ sues the man who sold it to her

… and no, very few moths are pests so please don’t kill them willy-nilly when you see them as we need them desperately for pollination. Numbers have plummeted over recent years.

So on the good news over one of its component investments and the discount narrowing usefully, just that one small move propelled the holding into our largest, representing 1.9% of total client assets, just under £5million. That’s Tetragon Financial Group which still trades at a colossal discount to the underlying assets held – you may recall I profiled this fund not all that long ago and before the boost. Tantalising.

Other news? Renewi and Direct Line both enjoy bids and see their shares rise by almost half – excellent news and indicative of the value we have in so many similar stocks.

Off-boarding clients

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A survey by ‘Nextwealth’ has noted disturbingly that apparently 75% of advisers are dumping clients. The costs of looking-after smaller clients have rocketed since the regulatory burden has escalated and now, demands upon firms mean they have to list their target audiences and potentially that can lead to ‘no-targets’ being dumped. Even if those small clients are happy paying a higher fee, the Regulator could say that then the adviser is not providing ‘fair value’, in what would seem to be a giant shooting-oneself-in-the-foot as it exists to promote growth in financial services and a wider availability of financial advice to the general public and especially those without significant wealth.

So far, we’re not doing this, so as long as you cherish us as we cherish you… all’s ok!

Work-placed pensions underperform

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‘Investing Insiders’ has announced that almost 90% of work-based pension funds have under-performed their standard benchmarks over the past five years. I wonder – is that a bad thing in view of what the US market has done and its potentially seriously overblown levels now and thus a more cautious line taken by the schemes – or is it systematic of bigger concerns about workers’ default schemes?

One of the biggest failings we encounter (and often not covered) is that schemes cannot provide advice to the employees. Yes, they can flag the options but cannot consider the personal circumstances of the employees and at retirement, that is a crucial consideration as not everyone has the same scenarios to be defaulted into the wrong choices. They may well be ‘cheap’ schemes but at what cost, if you do the wrong things and have no guidance and no oversight?

Engage an independent financial adviser to give you guidance, is the best outcome… and don’t put all of your eggs in the works’ pension either but spread them around, keeping your scheme to bank the employer’s contributions of course.

And here’s some entertainment for you related to pensions and assets/income into dotage – average longevity rates are online:- Life expectancy calculator

… apparently women are far more pessimistic about how long they think they will live (and thus how long they need their capital and income). They under estimate by seven years – men by four years. I hope you see that as ‘good news’ for you!

My best wishes

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB

Chartered Wealth Manager

Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers

 

 

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