Following up on our recent article in which we explained how Neil slowly evolves his portfolios over time in the pursuit for attractive investment opportunities, we now look at the effect recent activity may have on the fund’s future income.
As we highlighted, Neil has reduced the portfolio’s exposure to mature blue-chip companies in response to a changing opportunity set within the market. However, the majority of the fund’s assets remain invested in dividend-paying securities with sustainable long-term prospects. This means the fund is on track to deliver more than 4p of income for 2016, which will represent modest growth on the income delivered in 2015, in aggregate terms.
Throughout his investment career, Neil has focused on delivering attractively positive long-term total returns through a combination of income and capital growth. There is much more to an investment decision than just yield considerations and this is why our focus is on delivering a particular level of income per share, rather than a specific yield.
Let us illustrate this by considering the fund’s performance since it launched in June 2014. The income per share that the portfolio will deliver in 2016 would equate to a yield of more than 4% based on the 100p price per share launch price. However, as a result of the positive capital performance that the fund has enjoyed since inception, the yield now is lower. But although the yield is lower, the income per share is not.
The income you receive from an investment will only fall if the number of shares you hold reduces (i.e. if you sell part of the investment) or if the pence per share income / dividend reduces – we have no control over the former, but the latter is what we are aiming to avoid.