Aussie "Dividend Aristocrats" and How to Find Them

He he, yes there's been no shortage of idiots running some of the banks over the years and they're still going strong.

 

Happy Time

Dividend bonanza ahead as record number of companies pay up

Australian shareholders will enjoy a $24 billion dividend bonanza over the coming months, with the bulk of that coming in the next few weeks, as a record nine in 10 of the top ASX-listed companies reward their investors with a payment.

Fears that a weak environment for corporate revenue growth would crimp businesses' ability to maintain dividends have so far failed to eventuate, CommSec chief economist Craig James said.

 

I'm already starting to drown in dividends with large deposits from MIR, AFI, BKI, MLT recently and ARG today (SMSF & Trust). Actually got my snorkell close handy incase I run out of air.

 

Hi @austing

What is your average yield across all of the LIC's 4-5%?

 

To be honest I don't have a clue anymore. It got to a point where the dividend income became a lot more than we need so I gave up checking quite some time ago. All I know is each year the income coming in is generally noticeably higher than the previous year and always continues to surprise to the upside. Calculating the yield for us now would be nothing more than an academic exercise which I don't have the inclination or enthusiasm for.

There are shares in personal name, family trust and SMSF.

Not very helpful I'm afraid. But believe me it does get to a point when one exceeds their financial goal where such things just aren't important anymore. We have great faith in our investing strategy proven over time and hence have no reason to want to change it regardless of what yield might do from one year to the next.

 

Sounds like a great point to be at @austing

As the years go on, one begins to ponder semi(retirement)

 

Great position to be in @austing

You have been so generous in sharing your wisdom about LICs so far. There is one other topic which I am sure lot of us would benefit from your experiences if you are willing to share. Please do not feel compelled if you are not comfortable.

What I would be interested in is what sort of preparations you went through before you pulled the plug from full time employment? Did you wait until the passive income from shares/LICs replaced your full time income? When did you seriously feel income from LIC is real deal and you can retire if you wanted to.

You mentioned in one of your posts that you sold most/all your IPs. Did you do that prior to retiring or after retiring? Assuming you made good profits from sale did you then pour it all in LIC in one hit or gradually over time?

I do have some more questions but depending on if you are happy to answer I will put them in another followup post.

Cheers,
Oracle.

 

In regard to preparations for retirement getting rid of debt was the major priority. The usual boring stuff like owning PPOR, car in good condition and anything requiring major expenses budgeted for. In our case a minimum two years living expenses cash buffer and cash set aside for emergencies. I've read many a tale of "living on equity" etc but not for this fella I can assure you. Doesn't make for great SANF in our case.

The reality is no matter how much wealth you accumulate you tend to worry it's not enough when retiring younger than most. That is, with the impact of inflation will it be enough to last decades into the future. It's not always about having the perfect retirement income. The one thing in life no amount of money can buy is "TIME". Each person is different in how they balance the requirements of time vs money when it comes to retirement. All I can say is you will know when the time is "right".

All IPs were sold progressively prior to retirement to best manage CGT. Investment into LICs was done gradually over time before and after sale of IPs. The GFC came along after the sale of a couple of properties and LOCs against the remaining IPs were used to buy as much shares / LICs I could afford at this time. The best use of debt is during such times not in more normal market situations. Sometimes luck plays a role in investing. When remaining IPs were sold the debt against the shares / LICs was mostly paid off.

Obviously this is only a broad picture rather than detail of what we did but hopefully it gives you some idea.

 

I forgot to mention that the only reason we owned IPs is that for a 10 year period we weren't able to invest in shares due to my wife's employment. It was during this time we reluctantly purchased the IPs. Otherwise we would not have owned any IPs at all. As soon as she left that job I was very eager to rebuild our share / LIC portfolio and get rid of the IPs but being sensible with CGT. The IPs were not part of the retirement plan. IPs with the high debt, huge expenses and endless hassles is not something I would ever want to do again.

 

Necessary evil I reckon. I don't regret purchasing IPs for a second.

 

No, definately not necessary. Just a personal choice.

 

Let me rephase, necessary evil for those looking to retire by mid 30s

 

Well done if you achieve that. No doubt the use of high leverage and timing (or by chance) the cycle with IP great things are possible. @keithj is a classic example who does this very well with both property and shares:

How I got from just a PPOR to multi millionaire retiree in 5 years using only OPM.

The keithj Interview

The Interview #11

Some of the best posts on Somersoft in my view.

 

I feel like LIC's or ETF's or even standard blue-chip companies have relatively low payouts, all my stocks are 4-6% dividend returns..

But then i look at property, which has capital growth usually a lot higher, and still 3-5% rental yield.. plus a lot more leverage with the banks (90% LVR), where shares are 50-60%..

I've ready countless books on both stocks and properties, but I still can't see the same growth in LIC's/Shares (compounding the dividends) that i do with the growth in building a property portfolio..

Am i missing something here? What is so appealing about an LIC that is returning some franked dividends at 4-6%? Especially when inflation is close to 3% pa??

 

Long run average equity performance hovers around the 10% mark. In Australia, this is close enough to half capital gains and half dividends. The dividends have franking credits attached which improve the dividend proportion depending on your tax rate.


I’m interested in your assertion about property. We have 50+ years of index data for equity returns, but I’ve not seen any property indices that have a similarly lengthy time series. If we assume that property delivers on average 7% capital gain and a 3-5% rental yield, then we would expect very similar results from either property or equities.


You are right of course about the leverage – 7% capital gains plus 80% LVRs have seen exceptional capital gains in property. If you believe my long term total return numbers, you would get a very similar outcome from leveraging equities at 80% (whether you would want to or not is another story).


Finally, equities have the distinct advantage that the returns are delivered after all costs. My experience with property is that the returns stated (7% capital and 3-5% yield) are correct (or close enough not to matter) but are before fees for property management and property upkeep and taxes etc, which is a significant slug of the return. When you add miscellaneous incidents (tenants not paying, weather events etc), I’d say there is also a not reflected cost of my time.


I suspect where we will differ is your definition for “capital growth usually a lot higher” for property. If you truly believe that you can get 10% capital returns and 3-5% rental yield on properties over the long term at 90% leverage then you would be mad not to do that. You won’t need LICs or shares to retire wealthy!

 

Historically, the total returns for both asset classes are roughly the same (with shares having slightly higher yield but slightly lower capital returns).

The real difference is leverage, and the ability to build up a massive compounding asset base through property. Wait for a property cycle, then you have the option of borrowing against the equity to invest in higher yielding assets such as shares.

 

Interesting subject. These apples aren't apples. Property gross yield is a very different thing on a leveraged asset than dividend yield. The gap is huge. Sure you will get some good punch gearing resi property if you are lucky, clever or both. That coin has another side and survivorship bias is real.

I don't think people appreciate the power of company structure for long term stock investing....you get the franking credits, you get the SP growth and you pay zero additional tax. Compare that to property quoted gross yield........a stock portfolio won't give you the short term punch that leveraged prop will in a rising market however. But, when prop investors have done there heads in hitting serviceability wall, land tax, mongrel tenants, buggered properties needing maintenance and all the assorted palaver that goes along with it (my MILs full time job seems to be managing her resi and retail props!) then the investment company just keeps compounding.....in the end scalability is what matters.

The unlisted investment company that BKI just bought for $19m (nta) that was just a brother and sister sitting on a pile of stocks that dad bought many years ago and they didn't touch except do the annual returns.

 

@The Falcon, great post thanks mate. Glad you've got the patience to reply. I'm afraid I haven't anymore as even bothering to comment on this one is generally a waste of time especially on a property forum.

The only comment I'll make is that high leverage is not a one way street. I've seen plenty in my lifetime get into a hell of a mess with it. What @The Falcon is highlighting is that there's an easier and less risky path but it's a waste of time trying to tell those who refuse to listen.

After saying that I'd better go and put my bullet proof vest on again.

 

Thanks Oscar, Falcon & Austing.

I'm very open-minded about both investment vehicles. I didn't really take into consideration the equity growth of the shares, I was more focused on the dividend yields. Providing what you say is true, Oscar, that the growth is usually 5% + dividend yield 5%, i can see now how that will be more beneficial in the long-term.

Just looking back at the last 10 years of all ords/asx20/50/100, it doesn't seem like there is close to 5% growth, where properties close to any CBD's are growing at around 10% PA..

I'm interested where you said "The only comment I'll make is that high leverage is not a one way street. I've seen plenty in my lifetime get into a hell of a mess with it.".. if you could extend further on this, i'd really appreciate it

 

Are you referring to LICs or the structure in which the shares are held?