Passive Income From Shares - See History through Charts

Discussion in 'Share Investing Strategies, Theories & Education' started by oracle, 27th Sep, 2017.

Join Australia's most dynamic and respected property investment community
  1. oracle

    oracle Well-Known Member

    Joined:
    16th May, 2007
    Posts:
    952
    Location:
    Canberra
    We have been very fortunate to have forum members like @austing who has tirelessly shared his time and knowledge educating us on the merits of investing in shares for passive income through large and established LICs and index funds/ETFs.

    I have been completely sold on the fact that shares are the right vehicle for me for passive income that can rise with inflation.

    I am kind of numbers man and like to do bit of fundamental research as I feel it is important to know the history of dividends paid and whether growth has been acceptable.

    I did a post sometime back on dividend history of VAS (ASX300 ETF) see here

    The idea behind this post and thread is to give bit of history on dividends paid by some of the LICs and ETFs afterall that is the only thing income investors care about.

    The data (mainly dividends) will be presented in charts on a financial year basis and my intention is to update the charts as new data becomes available.

    Start with two ETFs and will later add chart data for LICs

    1) VAS

    Below is dividend history of VAS for dividends paid per share from 2009 (inception) to 2017. I have included one chart for dividends without franking credits and one with franking credits.

    VAS_2009_2017.png

    Gross dividends for VAS includes franking credits.

    VAS_2009_2017_Gross.png


    The annual compounded growth rate of Gross Dividends for past 7 years for VAS has been 4.031%
    which has been better than inflation.

    2) VTS / VTI

    The second chart I want to present is of Vanguard Total US Share market index ETF. This ETF is listed on ASX with code VTS but the underlying ETF is VTI listed on US stock exchange. So VTS is the same product as VTI represented in AUD currency.

    The below chart is of VTI dividend history in US dollars. Again its showing dividends paid per share. The good thing here is we have dividend history since 2001 and includes the impact of GFC. The reason for using US dollar is to see dividend history without the effects of currency exchange.

    VTS_2001_2017.png


    As you can see dividends have increased every year except FY08-09 and FY09-10 when GFC was in full force. The interesting thing to note here is even though S&P500 fell nearly 50% during GFC the dividends dropped less than 20%. This is after rising from 0.635 to 1.331 in 6 years at an annual compound rate of 13.123%. The other good thing to note is dividends were back to pre-GFC levels after just 3 years. The best part is they have kept on rising at an impressive rate since then. From lows of 09-10 the dividend has increased at annual compound rate of 11.517% over the last 7 years. From 2001 the annual compound growth rate has been 9.216%. Try getting a 9% pay rise from your employer for 15 years and the rub here is you got this pay rise without going to work. You could go about doing whatever you want and the money with pay increases will just get deposited every quarter into your bank account. I can see huge smile on @austing :D

    Some other interesting observations.

    - People say US had a lost decade from 2001-2010 where S&P500 didn't go anywhere. But if you look at dividends they grew from 0.635 to 1.111 during that time which is about 75% higher.

    - The S&P500 was around 1200 in 2001. Today it is around 2500. So about 108% higher. If you look at dividends they were 0.635 in 2001-2002 and are 2.383 currently. That is an increase of 275%. So you can conclude the S&P500 was indeed very very expensive during the dot-com boom of 2001.

    I plan to add charts of dividend histories for some of the older LICs as I find more time. In mean time feel free to add your charts/data about why income from shares is good for retirement.

    I would like to keep this thread as a resource for finding dividend histories from various shares for people to feel comfortable to see for themselves what sort of income + growth in income they could expect by investing in shares and compare it with other asset classes.

    Cheers,
    Oracle.
     
    momentum26, Drifty, Empire and 29 others like this.
  2. dunno

    dunno Well-Known Member

    Joined:
    31st Aug, 2017
    Posts:
    883
    Location:
    Home
    Great post and thread idea Oracle.


    A long view of XAO dividends.

    upload_2017-9-27_12-19-56.png

    I’m with you on self-smoothing the dividend flow. The purple line is a regression of dividends to GDP which should be a reasonable guide to where current dividends sit in relation to underlying economic drivers of dividends.
     
    Froxy, asw1, Piston_Broke and 7 others like this.
  3. Swuzz

    Swuzz Well-Known Member

    Joined:
    30th Aug, 2017
    Posts:
    123
    Location:
    Melbourne
    I wish standard charting software had dividend as a chart option /style rather than just an event marker on the price chart
     
    Archaon and TazDevil_666 like this.
  4. oracle

    oracle Well-Known Member

    Joined:
    16th May, 2007
    Posts:
    952
    Location:
    Canberra
    Starting with 3 LIC

    1) AUI

    Founded in 1953 has a MER of 0.10% is one of the lowest.

    Dividends are normally fully franked. Below is chart of Dividend history (excluding franking credits)

    AUI_1992_2017.png

    One of the first things to notice about the above chart is over the past 24 years dividends have either been increased or maintained. They have never been reduced even during GFC. This is quite an achievement.

    - Annual compounded Growth rate since 92/93 is 6.5%
    - Annual compounded Growth rate since 09/10 is 4.2% which is slightly higher than VAS at 4.03% over the same period.

    Overall, I like this LIC and own it too.

    2) DUI

    Founded in 1991 has a MER of 0.15% which is quite low. DUI invests around 10% of the portfolio in international ETF offering it's investors some international diversification.

    Dividends are normally fully franked. Below is chart of Dividend history (excluding franking credits)
    DUI_1993_2017.png


    Again, just like AUI you will notice with the above chart over the past 24 years dividends have either been increased or maintained. They have never been reduced even during GFC.

    - Annual compounded Growth rate since 92/93 is 6.8%
    - Annual compounded Growth rate since 09/10 is 1.57% which is significantly lower than VAS at 4.03% over the same period. One of the reason being DUI started investing in international ETF's around that time. Since international ETF provide lower yields compared to ASX200 the dividend income would have been reduced thereby impacting dividend growth rate. I expect the growth rate should pick up over the coming years.

    Overall, I like this LIC but don't own it.


    3) ARG

    Established in 1946 has a MER of only 0.17%. It is the second largest LIC on ASX. Largest is AFI.

    Dividends are normally fully franked. Below is chart of Dividend history (excluding franking credits)

    ARG_1987_2017.png

    Dividends prior to 87/88 were not franked. The above chart includes special dividends, dividends that include LIC capital returns and between 1992 and 1994 dividends were franked at between 80% and 90%. You can find more info from ARGO dividend history.

    The old LIC like Argo are very much index proxy with slight tilt towards companies with good histories of dividend payments and future prospects.

    During GFC dividends were reduced but the reduction was just under 17% which is far lower than the falls in share price during that time.

    - Annual compounded growth rate since 86/87 is 3.15%
    - Annual compounded growth rate since 09/10 is 2.88% which is lower than VAS at 4.03% over the same period. I am not too sure for the underperformance in dividend growth rate.
    - Annual compounded growth rate since 92/93 is 3.8% which is lower than AUI at 6.5% and DUI at 6.8% over the same period. Again not sure for the reason for underperformance.

    Overall, I like this LIC but don't own it.


    Cheers,
    Oracle.
     
    Empire, Soul, Silverson and 21 others like this.
  5. Snowball

    Snowball Well-Known Member

    Joined:
    28th Dec, 2016
    Posts:
    801
    Location:
    Perth
    Oracle you legend!
    Seriously, incredible stuff!
    This has been on my to-do list for a while but I just keep getting lazy and put it in the 'thinking too much' basket. And I'm not sure how to make the charts lol.
     
    KayTea, Realist35, sharon and 2 others like this.
  6. Nodrog

    Nodrog Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    10,077
    Location:
    .
    Great work @oracle.

    The only potential weakness I see here is the disconnect from NTA growth. For example ARG has outperformed AUI a little over the majority of last 10 years but if you look at dividends alone one would get the opposite impression.

    But honestly given that NTA growth is not all that different I know which of these two LICs most retirees seeking consistent and growing income would likely choose if these charts were presented to them:).

    The older LICs (but somewhat less so for DJW) being mostly dividend collectors as opposed to trading LICS tend to be a more honest. But with new breed LICs it's definately worth looking at NTA growth along side dividends to see where the dividend is coming from! Maintaining dividend consistency and growth if it's coming in part from one's own capital is not desirable.

    Great to see that others are appreciating LICs as a great source of passive income. It would be an understatement to say that I'm a huge fan of well chosen LICs.

    I'm excited:
    IMG_0439.JPG
     
  7. Hodor

    Hodor Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,135
    Location:
    Homeless
    Interesting. Appreciate the effort to collate all this.

    I'll voice my concern about historical LIC dividends. LICs (in general) currently have very high payout ratios which from a look at MLT have been gradually increasing. This makes sense as they are more valuable to the retiree to receive and reinvest vs internal compounding.

    I haven't looked to confirm (been busy), it wouldn't be too much of a stretch to imagine this is a common trend among the old LICs. This retention and reinvestment of divs would make it easier to increase the dividend. Secondly it has been grown by increasing the payout ratio, which isn't sustainable growth.

    The same charts with dividend weighted with payout would be even more interesting. The work required is too probative for someone like me.
     
    sharon and Anne11 like this.
  8. therealAusting

    therealAusting Well-Known Member

    Joined:
    21st Jun, 2017
    Posts:
    166
    Location:
    NSW
    Thanks Oracle.

    I really appreciate this post.

    As most here now know I am a bit of aVanguard fan. Having said that I can see the benefits of a LIC with its fully franked dividend when distributing to a bucket company.....no need to pay additional tax. The LICs look superior to VAS in this regard.

    Their disadvantages include that they issue new shares occassionally which forces people to top up if they don't want to get diluted. Do you know which LIC issues the least amount of new shares?
     
  9. Indifference

    Indifference Well-Known Member

    Joined:
    30th Jul, 2015
    Posts:
    744
    Location:
    Banana Republic
    Great work on the charts. Personally I find reading dividend in cents/dollars per share a little confusing as it doesn't allow me to quickly assess the ROC. Perhaps I'm reading the charts wrong?
     
  10. Nodrog

    Nodrog Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    10,077
    Location:
    .
    The older LICs use profit reserves mostly for dividend smoothing rather than trying to create internal growth. Of course the more they payout the less reserves available to maintain / grow the dividend when the overall market dividend is cut. They can't perform miracles as they essentially reflect the growth / dividends of the assets they hold in the portfolio. Of course in the case of VAS the payout is 100%.

    I come back to pre-tax accumulation NTA growth as the best indicator of LIC health. Of course looking at profit / franking reserves etc can be helpful in understanding which LICs will be able to maintain / grow their dividends in the shorter term. But in my ammateur opinion again longer term NTA growth is the best indicator.

    As the chart below shows dividends are cut noticeably in turbulent times as during the GFC. Although I would argue it wasn't a cut but merely reversion to the mean. Draw a straight line from left to right on the chart's bars to see what I mean. During the good times (abnormal dividend growth) prior to the GFC the LICs were likely paying out less and building reserves. But there's a limit to how much they can smooth / grow dividends when the **** hits the fan:
    IMG_0410.JPG

    A slightly older chart sorry as I haven't got the more recent one on the IPad.

    In summary, my rule of thumb is that you should also maintain your own reserves (eg cash buffer) and ideally increase your reserve in good times for those worst of times when LICs perhaps can't perform the impossible!

    Sorry @oracle if this has taken the thread off topic.
     
    Last edited: 28th Sep, 2017
  11. Nodrog

    Nodrog Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    10,077
    Location:
    .
    You won't be diluted if the SPP is priced above the LIC's NTA. Just because a SPP is at a discount to Share "price" doesn't automatically mean it's less than NTA. In fact from memory if the SPP is at a premium to NTA it can be beneficial to existing shareholders (accretive) who choose not to participate. However I'm rusty on such things so others can correct me if I'm wrong.

    The following article on a previous BKI SPP might be helpful to some in understanding the benefits of some LIC SPPs:

    The BKI share purchase plan
     
    Last edited: 28th Sep, 2017
    Peter P, sharon, Hodor and 2 others like this.
  12. dunno

    dunno Well-Known Member

    Joined:
    31st Aug, 2017
    Posts:
    883
    Location:
    Home
    Hi Oracle.

    Have you allowed for dilution of the historical dividend amounts for true dilution events like bonus issues and discounted rights issues?
     
    Nodrog likes this.
  13. Nodrog

    Nodrog Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    10,077
    Location:
    .
    Or alternatively the benefit to those shareholders who participated in discounted events:)?

    This is all very interesting and I enjoy such topics but if you've invested in these things long enough then honestly overtime you know what the income rewards are which no chart can show given the variables involved.

    Each to their own of course but for me the long term income rewards as a result of investing in the older LICS and participating in capital raisings etc have been very pleasing. Is older LIC "x" better than LIC "y" vs the index etc, quite frankly I could care less.

    I'm sure @SatayKing can also attest to this:).

    As usual not advice.
     
    Anne11 and sharon like this.
  14. oracle

    oracle Well-Known Member

    Joined:
    16th May, 2007
    Posts:
    952
    Location:
    Canberra
    I can see your point. People who like fundamental analysis like to see the complete picture analysing balance sheet, income statement and cashflow statement and the various ratios derived from that data.

    One of the things that I learnt about financial statements is that over the long term some of that data could be manipulated to make it look good to investors/analysts.

    The one thing that management cannot manipulate is the dividends paid per share to shareholders. This is the cash that hits your bank account and can only be paid by the company if it can afford to pay.

    A growing stream of dividends per share over a very long period tells an investor couple of very important things.

    One is the company is doing something right and is profitable to be able to pay growing stream of dividends over such a long time.

    Other is management is shareholder friendly and takes dividend payments very seriously. Hence, all capital allocation decisions have to first pass the test of not endangering existing dividends and second test of being able to generate enough return to grow existing dividends.

    Sure, due to dividend commitments sometimes management misses on opportunities to invest in some ventures that could have been very profitable for the company but such opportunities are very rare. What you really want is management who avoids allocating capital solely for the purpose of empire building and in the process destroying shareholder value. IMHO, companies that pay growing stream of dividends usually don't fall into the above category.


    All good mate.

    No, I haven't. Most of the data is taken directly from the company website about the dividends paid per share.

    So what the charts above tells you is if you bought one share of any of the above companies what that one share would have paid you in dividends. It doesn't say anything about SPP, dilutions, bonus, rights issue, debt obligation, capital growth in NTA etc. You could have completely forgotten about this purchase but would have still ended up with the above dividends per share. This is about getting passive income without you having to get involved at all.

    Cheers,
    Oracle.
     
    Last edited: 28th Sep, 2017
    mvsim, Snowball, Indifference and 5 others like this.
  15. oracle

    oracle Well-Known Member

    Joined:
    16th May, 2007
    Posts:
    952
    Location:
    Canberra
    Agree, one of the main purposes of the above charts was to give people who are current shareholders of the above LIC/ETF or intend to become shareholders a good historical view of the stability and growth of income over time in spite of recessions, wars, natural disasters, political party in government and most important volatility in share price and compare it with other asset classes and make informed decisions about whether they think shares can be a viable strategy for passive income for retirement.

    Some people think stock market is a big casino and you only put any money in there if you feel like gambling. I think looking at some of the above charts they might change their views and see despite being highly volatile there is stability and growth in income generated which you can rely on.

    Cheers,
    Oracle.
     
    Last edited: 28th Sep, 2017
    mvsim, PJ1, Tony and 8 others like this.
  16. Nodrog

    Nodrog Well-Known Member

    Joined:
    5th Jun, 2006
    Posts:
    10,077
    Location:
    .
    @oracle said:
    The most important point of ALL when it comes to investing in the "old" LICs. They were created for those of us who "don't want to do it ourselves". And for a rediculously low fee at that.

    Find honest LICs whose objective is aligned with yours (eg genuine growing income stream) with management you trust who put shareholder's interests first! As simple as that.

    For those of us who simply want a simple, set and forget passive growing income stream then get on with enjoying life this is what I think of wasting one's life trying to understand balance sheets:
    IMG_0403.JPG

    Gonna be stinking hot outside again today so unfortunately you may have to put up with more posts than usual from me again whilst indoors enjoying ducted air conditioning.
     
  17. dunno

    dunno Well-Known Member

    Joined:
    31st Aug, 2017
    Posts:
    883
    Location:
    Home
    Unfortunately you do need to allow for dillution to get a proper historical picture - it makes a huge impact in certain cases.

    Take ARG for example. They have had a few 1 for 10 bonus issues amongst other events. Your 1 share today represents 0.9 share prior to the last bonus issue. therefore you need to multiple the diluted shareholding figure against the actual dividend amount to see your real income.

    According to the Morningstar Database Dillution Factors, this is ARG dividend chart.

    upload_2017-9-28_9-53-22.png
     
  18. SatayKing

    SatayKing Well-Known Member

    Joined:
    20th Sep, 2017
    Posts:
    5,014
    Location:
    It is still all about ME!
    Nice post @oracle. Thanks.

    Ever done the tranche purchase price v dividend thing? My spreadsheet skills have diminished to almost zero now so I wont re-create it - only maths I now use are those to calculate franking credit and how many shares to participate in a DRP to absorb a special dividend.

    It was the number of shares bought at a particulate time in the past and the cost of that purchase. Then work out how much dosh received over time in dividends. Turned out a number of tranches were now free carry in a sense. I only did it for my amusement and satisfy my curiosity.

    One reason why I'm not fussed with DJW. No doubt there is red showing there but I know the divvies way more than cover that.

    The other thing I know is self needs coffee. Been hanging out for one but resisting as it's my addiction.

    Just saw your post below @dunno. Does ARG share buybacks have any impact at all on the dilution aspect?
     
    sharon and Nodrog like this.
  19. dunno

    dunno Well-Known Member

    Joined:
    31st Aug, 2017
    Posts:
    883
    Location:
    Home
    If you want a fuller total gross dividend plus NTA change persepective.

    upload_2017-9-28_9-59-14.png
     
  20. oracle

    oracle Well-Known Member

    Joined:
    16th May, 2007
    Posts:
    952
    Location:
    Canberra
    May be there is some misunderstanding. When a company publishes dividends paid per share for eg. $1 dividend per share it means if you own one share you will get $1 payment. Plain and simple.

    Now if during that year the company issued 1 for 10 bonus in spite of my one share now representing 0.9 share of issued shares that doesn't concern me. That is how I have always received my dividend payments. All my research shows you don't need to re-adjust your dividend per share when new shares are issued. The only thing you need to adjust is if there is split then the dividends per share figure needs to be adjusted for the split but it again doesn't reduce the dividend payment paid.

    The figures above of dividends paid per share include all required adjustments in share count during that financial year.

    Cheers,
    Oracle.
     
    Snowball likes this.