LIC & LIT Listed Investment Companies (LICs) 2019

Discussion in 'Shares & Funds' started by Nodrog, 1st Jan, 2019.

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  1. geoffw

    geoffw Moderator Staff Member

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    My own strategy has been almost all ETFs, influenced by people in the forum and Bogle's ideas (as exemplified by the famous Buffett bet), if not his book. But when the discussion turns to which ETFs are better, it gets muddled.

    I'm mostly not personally fussed whether I get dividends or growth, except that in a crash, I can lose value in my shares but not the dividends which have been paid.
     
    geoffw, 19th Jul, 2019
    #1681
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  2. orangestreet

    orangestreet Well-Known Member

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    Might be of interest to some. Looks like MLT, in the last reporting year has purchased some shares of Whitefield Ltd (WHF) - 149373 shares worth $726,000 to be exact.
     
    orangestreet, 19th Jul, 2019
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  3. pippen

    pippen Well-Known Member

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    Great post!

    Turning point in my head was listening to choose FI dividend deep dive 122R podcast with Big Ern!

    Talks about selecting dividend payers and growers and how we dont know in 20 years time who will be the stalwards and its much easier to look back in time than it is to pick the next csl or cochlear for example.

    Also talks about the index and total return approach very US centric but still can be manipulated to the Aus market!
     
    pippen, 19th Jul, 2019
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  4. dranzer

    dranzer Member

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    What do you mean by "not lose value in dividends"? They also halved during the GFC.

    STW dividend history - Share Dividends
     
    dranzer, 19th Jul, 2019
    #1684
  5. Nodrog

    Nodrog Well-Known Member

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    :D Just glad I can afford the running repair bills on my most important asset - ME:).
     
    Nodrog, 19th Jul, 2019
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  6. geoffw

    geoffw Moderator Staff Member

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    What I mean is that dividends which have already been paid are in my pocket. If the value of my portfolio halved, I would at least have that money. Capital gains are only on paper until realised.
     
    geoffw, 19th Jul, 2019
    #1686
  7. The Falcon

    The Falcon Well-Known Member

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    It all comes from the same place. Sell some growth assets periodically to create "income". Put in your pocket. Same result. High payout or sell down does the same thing - reduces your market exposure.
     
    The Falcon, 19th Jul, 2019
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  8. dunno

    dunno Well-Known Member

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    Hmmm LIC cross holdings.

    MLT incurs management fees to invest in WHF who also incur management fee before you get to the underlying operating company exposure. Sign of shortage of valuable long term ideas me thinks.

    Another positive of market cap ETF’s. Listed Investment companies are not part of the capitalisation indexes. Just straight operating company exposure with the certainty of only one ticket clip.
     
    dunno, 19th Jul, 2019
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  9. Observer

    Observer Well-Known Member

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    Interesting, did not know they have any WHF shares. Must say I quite like WHF too (to the point of it being our major holding). If only I had spare $726k to top up :).
     
    Observer, 19th Jul, 2019
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  10. Nodrog

    Nodrog Well-Known Member

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    These concerns apply more to individual direct shares as opposed to entire markets. Besides all these main indexes pay dividends some more so than others often due in no small part due to tax circumstances in each country.
     
    Nodrog, 19th Jul, 2019
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  11. geoffw

    geoffw Moderator Staff Member

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    That's only if some growth assets are sold. As I said, capital gains are only on paper until realised. Some people here are saying not to sell down.

    But is there an advantage to dividends if I'm entitled to full imputation credits?

    Company A gets say $1M profit, pays 30% tax, and has $700k to put back into the business.

    Company B gets $1M profit, and has $700K which it distributes entirely to its shareholders. But the only shareholder is Dick Smith who not only gets his $700k, he also collects $300K in imputation credits.
     
    geoffw, 19th Jul, 2019
    #1691
  12. geoffw

    geoffw Moderator Staff Member

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    But it's already been stated that VGS has higher retained earnings than VAS, starting off this whole discussion.
     
    geoffw, 19th Jul, 2019
    #1692
  13. dunno

    dunno Well-Known Member

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    Let's say the business can invest it's retained earnings at an ROE of 12% and sells on the market at a P/E of 15.

    Even though Dick is using his advantage of zero tax rate (not feasible tax rate with scale given the 1.6M cap).

    What does the next year look like with him reinvesting the money vs the company reinvesting the money. I'll leave you to work it out - let us know what you come up with.
     
    dunno, 19th Jul, 2019
    #1693
  14. geoffw

    geoffw Moderator Staff Member

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    The numbers were extreme to illustrate the point.

    What happens to the money next year is a different discussion. I could just as easily have invested my dividend payment into another company which uses it efficiently. The private sector is a bit better off, the government a bit worse off.
     
    geoffw, 19th Jul, 2019
    #1694
  15. dunno

    dunno Well-Known Member

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    Not a different discussion. Do yourself a favour - run the numbers.
     
    dunno, 19th Jul, 2019
    #1695
  16. geoffw

    geoffw Moderator Staff Member

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    Sorry, I'm really trying to understand.

    I'm asking about the tax effects now of one approach vs another. You're telling me that a company will be better off in the future by retaining profits. Which is a different question. I don't dispute that it will be better off, as Warren Buffett has shown.

    What I'm asking is, is taking a dividend more tax effective overall (company plus taxpayer) than retaining earnings, given tax imputation to a taxpayer who will not pay tax on those earnings?
     
    geoffw, 19th Jul, 2019
    #1696
  17. sfdoddsy

    sfdoddsy Well-Known Member

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    I'm not sure if anyone here invests in Affluence (basically a fund of funds whose point of difference is that they invest in LICs).

    I'm on their mailing list and just received a 'hang in there' email about their rather poor performance over the past year.

    Then they linked to the LICs they are actually investing in:

    Why the LIC market is attractive right now - Affluence Funds Management

    Judging by that list of investing judgements, the perils of active management apply in the LIC world too.
     
    sfdoddsy, 19th Jul, 2019
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  18. dunno

    dunno Well-Known Member

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    ​

    Company reinvests 700,000 at 12%. Next year Dick will receive $1,084,000.

    Dick takes his tax free $1,000,000 and reinvests it into the market at a P/E of 15. Next year he will receive his $1,000,000 from the company plus another $66,667 from the reinvestment.

    Even assuming a zero tax rate. Dick is behind next year. 12% ROE and P/E of 15 are not aggressive assumptions to make the point. A zero tax rate is on the other hand isolated to one cohort.
     
    dunno, 19th Jul, 2019
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  19. kierank

    kierank Well-Known Member

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    IMHO, that is only part of a plan.

    For me, a plan should also include your current financial situation, where you plan/expect to be in 5, 10, 15, ... years time (if your timeframe is shorter, then make it 2, 4, 6, 8, ... years time).

    It really isn't THAT difficult. It is a bit like planning an overseas holiday. You know where you are starting from (current financial situation), you have worked your first stop (when you plan to get there, how long you will stay, how much you budget to spend, ...), the same thing for your second stop, third stop, ...

    The nice thing about having this in your plan is that you can monitoring how you are travelling (pun intended) and, if things aren't going according to plan, you can take corrective action (same as your overseas holiday).

    A plan is a bit like a plane on auto-pilot. It will be off-course more time than it is on-course BUT it is regularly monitoring its progress/taking corrective action so that it arrives at the intended destination.
     
    kierank, 19th Jul, 2019
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  20. ChrisP73

    ChrisP73 Well-Known Member

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    @dunno
    what's the long term avg ROE of the asx200/300 index? Actual retained earnings that is.
     
    Last edited: 19th Jul, 2019
    ChrisP73, 19th Jul, 2019
    #1700
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