Passive Income From Shares - See History through Charts

I understand where you are coming from but the companies are publishing actual dividend declared for a consistent 1 share amount. You have already made the comprehension that your 1 share today may have represented a diferent proportion of a share in the past.

Imagine if it was a 10 for 10 bonus issue equivalent to a 2 for 1 share split. In fact all bonus issues are a moderate form of share split and many other corporate actions also have a dillutive effect. Plenty of information and research out there - probably some of the best is how S&P etc go about adjusting the indexes for corporate actions. There are trillions of dollars of future contracts relient upon the the robustness of the dilution logic. If its floored and you know different, you could become a multi-billionaire exploiting it.

Sorry I probably sound like a twat trying to get you to see a little deeper - but its important.

 

If an LIC, for example, is at a 10% premium and a SPP is at a 5% discount then people who hold get added value as you said.

 

I think you instinctively know something is not quite right with the numbers. It's your handling of the data for dilution impact which accounts for most of the perceived 'underperformance'. That’s why getting the dilution correct is important for drawing historical conclusions.


Sorry I'm not trying to be argumentative - it’s not that I just have a different opinion - it’s just math dictates something is either right or wrong.

 

Here is my understanding and please correct me if it's wrong.

I bought 1 share of ARGO on 1st July 2009. I forgot about that purchase after buying.

Based on dividend data available on Argo website and used for my calculations - ARGO Dividend History

My one share of Argo would have earned me (see below data from above link)

25 cents fully franked dividend deposited into my bank account in FY09-10
26 cents FF in FY10-11
26 cents FF in FY11-12
26 cents FF in FY12-13
27 cents FF in FY13-14
28.5 cents FF in FY14-15
30.5 cents FF in FY15-16
30.5 cents FF in FY16-17

In my exercise I only care about how much dividend I earned (deposited into my bank account) from my purchase of 1 share of ARGO on 1st July 09. This is all I care about as a passive income investor.

Based on my calculation my dividend per share grew from 25 cents in 09/10 to 30.5 cents in 16/17 which is compounded annual growth rate of 2.881% over 7 years. All other calculations are done exactly the same way with same assumption of buying 1 share of given security and then forgetting about the purchase and just collecting dividend on that 1 share.


Date Paid Cents per share Franking Amount
------------------------------------------------------------------
04.09.09 13.0 fully franked (2.0 cents LIC capital gain)
03.03.10 12.0 fully franked

03.09.10 13.0 fully franked (2.0 cents LIC capital gain)
07.03.11 13.0 fully franked

07.09.11 13.0 fully franked (2.0 cents LIC capital gain)
07.03.12 13.0 fully franked

05.09.12 13.0 fully franked (1.0 cent LIC capital gain)
04.03.13 13.0 fully franked

04.09.13 13.5 fully franked (0.75 cent LIC capital gain)
05.03.14 13.5 fully franked

03.09.14 14.5 fully franked
04.03.15 14.0 fully franked

02.09.15 15.5 fully franked (3.0 cents LIC capital gain)
04.03.16 15.0 fully franked

09.09.16 15.5 fully franked
10.03.17 15.0 fully franked
---------------------------------------------------------------------------

Cheers,
Oracle.

 

There have not been any dilution events since 2009. Last one appears to be 2007.

But there have been a few over the period of the long-term chart you posted.
For example, 1:10 bonus share issues in both 1996 and 1997

If you had 1 Agro share at the start of 1995 you would have had 1.1 after the first bonus issue and 1.21 after the second.

1995 dividend would have been 1*13c = 13c
1996 dividend would be 1.1*13c = 14.3c
1997 dividend would be 1.21*13c = 15.73c

Your long-term chart shows no dividend growth over that period - a flat line period of 13c which is not the real dividend return to the continuous holder.

Dilution calculation reverses the effect to get the right outcome. So, in 1997 you say you have 1 share receiving 13c therefor in 1996 you had 1/1.1 = 0.9091 shares and in 1995 you had 0.9091/1.1 = 0.8264 shares

1995 = .8264 x 13c = 10.74c
1996 = 0.9091 x 13c = 11.82c
1997 = 1 x 13c = 13c

10.74% to 13% gives the same real life actual CAGR of 10% over the two-year period as does 13% to 15.73%. It’s just dilution works backwards from saying you have one share today as opposed to saying you had one share at the start and escalating the number of shares you hold now.

What is definitely not correct is saying there was no dividend growth for the continuous holder over the bonus issue period.

Hope this helps rather than confuses.

 

Yes, thanks I understand how bonus shares works it's just there was no mention of it anywhere on ARGO website that I could find.

Can you provide details of where you obtained information about ARGO bonus shares in 1996, 1997 and 2007?

Cheers,
Oracle.

 

@dunno - I now get what you are saying. Thank you for breaking it down for people like me - not that great at math!

 

The Morningstar DatAnalysis Premium Database.



Here's a list of the dilution factors for some of the investment LIC's

 

That's good to hear. I started reading it then ended up in my usual state being of limited brain capacity nowadays:

 

I dunno - I think you must be pretty smart to decipher it from my ramblings - took me much longer to get my head around it the first time.

 

When you get a chance are you able to provide the correct compounded annual growth rates in dividend income for ARG shareholders.

1) Between 1986/87 to 2016/17
2) Between 1992/93 to 2016/17

So we can update the post to reflect the effects of bonus share issue / dilutions

Cheers,
Oracle.

 

Just multiply the actual dividend amounts you already have by the dilution factors given above and you can re-do the charts and returns to actual continuous holder outcomes.

It will be accurate so long as the morningstar dillution adjustment factors are acurate - I'm not going to vouch for that.

 

Ok will give it a try.

What is usually the rationale behind company like ARGO to declare bonus share instead of declaring fully franked dividend which technically would provide a higher gross return to shareholder?

Cheers,
Oracle.

 

Rationale? I dunno - they don't tend to do it so much anymore - maybe some historical benefit??? Perhaps somebody with more LIC experience would know why.

Whilst I'm being pedantic on data presentation - you seem you know your way around a spreadsheet - It might be more useful to show the growth rates as the slope of a trend or regression line, to avoid the possible largish distortiions caused by smallish variation in the start and end data point in your return calculation.

 

For total dividends including franking.



Using the best fit Exp Trend – the growth rate in dividends is 4.80%

Using 1990start and 2017 end the CAGR is 3.76%

The difference is 1990 start point is above trend and 2017 end point is below trend (maybe trend is slowing or start and end point is not accurately representative of all data points?)


Probably need one more thing on the charts and thats the inflation rate because the bottom line for me is:

If dividends are growing at or faster than inflation we are preserving / increasing our purchasing power and that’s what we need from these LIC’s to allow us to achieve the goal of don’t give a F, revelling in senility, grumpy old (wo)man retirement.

 

Perhaps to provide greater liquidity. LICs weren't anywhere near as popular in the past and those that invested in them tended to buy and hold. MLT used a Share Split to improve liquidity some years back. When I have these questions I just ring them. You'll be surprised at times at how high a level you get to speak to. The old LICs are very shareholder friendly.

 

There is not a great deal of rationale to splits or bonus share issues, might increase liquidity slightly or avoid mental or large entry roadblocks. Doesn't matter how you cut up a pizza you still have the same pizza.

 

I'm not sure if my brain is seriously no longer capable of digesting serious maths.... I know I should understand this, and I know that you seriously know your stuff (I think your post it amazing - your level of understanding and detail is phenomenal), but my head now feels like it's going to implode.

Can I please just 'buy some shares and get paid some dividends?'. I think my few remaining brain cells will cope much better with the simpler approach.

 

I don't know guys.

My rough analysis (before I get ripped into) of say, ARG, equates to:

• an average, dividend growth rate of approx. 4% or so per annum since 2000 - OK
• an average growth rate of its share price of approx. 5% per annum since 2000 - Not fantastic
  
• Warrants buying in cash rather than using leverage, resulting in a pretty underwhelming cash on cash return. Not good
• Dividend payouts go through 2 discretionary filters - of the companies it invests in and its own management. So far so good but when times are lean, they do cut the dividend. Not great if you're sailing close to the wind cashflow wise and depending on the dividends to pay your bills (during the lean years)

Obviously it's good to diversify your investment portfolio ie a mix of real estate and stocks (and I am topping up my super fund every year) etc but I personally am not entirely comfortable with liquidating my flock to go all-in into stocks, LIC's and anything in between. I'm prepared to endure more blocked toilets.

Am I missing something here?

 

Works for me!

I forget who said it, I think it was Sir John Templeton but I stand to be corrected, who said, when asked when is it the best time to invest, replied, When you have $5,000. Of course, it's possible he never said that or my memory is crap or some jurno just made it up. Whatever but I feel the gist was don't over think it.