* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download THE EXTRAORDINARY DIVIDEND
Modified Dietz method wikipedia , lookup
Internal rate of return wikipedia , lookup
Investor-state dispute settlement wikipedia , lookup
Syndicated loan wikipedia , lookup
Securitization wikipedia , lookup
Rate of return wikipedia , lookup
International investment agreement wikipedia , lookup
Negative gearing wikipedia , lookup
Business valuation wikipedia , lookup
Financial economics wikipedia , lookup
Fund governance wikipedia , lookup
Private equity in the 1980s wikipedia , lookup
Global saving glut wikipedia , lookup
Private equity in the 2000s wikipedia , lookup
Stock valuation wikipedia , lookup
Private equity wikipedia , lookup
Corporate venture capital wikipedia , lookup
Private equity secondary market wikipedia , lookup
Land banking wikipedia , lookup
Early history of private equity wikipedia , lookup
Corporate finance wikipedia , lookup
THE EXTRAORDINARY DIVIDEND Neil Woodford, 24 March 2017 The views expressed in this article are those of the author at the date of publication and not necessarily those of Woodford Investment Management Ltd. The contents of this article are not intended as investment advice and will not be updated after publication unless otherwise stated. The dividend is often called the ordinary dividend, but there is nothing ordinary about it. There is no other piece of information that a company can give to investors, which could more accurately reflect what that business really thinks about its current state of health. Principally, this is because companies find it very hard to cut their dividends. It is the walk of shame for any board and executive management to cut the dividend – it is a last resort, and rightly so. By contrast, companies that choose to sustain and grow their dividends, are doing so in the knowledge that they are creating a bigger burden for the future – they need to be confident in the sustainability of the business and its future growth prospects, in order to do so. This does introduce a problem too, however. The difficulty that boards and management teams have with dividend cuts, can lead to some ambiguous behaviour. Sometimes companies will go to great lengths to avoid a dividend cut and this simply stores up trouble for the future. This is where judgement comes into my investment process – I have to make judgements about the sustainability of a company’s dividend which may be at odds with what a management team is saying. Within the UK stock market, examples of this can currently be found in the oil & gas sector. I believe that both BP and Royal Dutch Shell have unsustainable dividends that are being financed by a combination of debt and asset disposal. In effect, these companies are liquidating themselves rather than facing up to the need for a dividend cut. The only thing that can save them from that eventuality, in my opinion, is a return to sustainably higher oil prices – something that I think is very unlikely to happen. In short therefore, although I know this is a contrarian view because these are widely held shares, particularly by income funds, the oil majors are an unattractive investment proposition while the threat of a dividend cut hangs over them. Instead, my focus (for the Equity Income Fund and the new Income Focus Fund) is on identifying businesses that are attractively valued and capable of delivering sustainable dividend growth in the years ahead. There is a simple reason for that focus, which is clearly evident in the chart below. Reinvested dividends have formed a very significant part of the long-term return delivered by equities. Download PDF Reinvested dividends provide a powerful boost to long-term equity total returns With dividends reinvested, £1,000 in 1926 would have grown to £7.8m by 2017 THE EXTRAORDINARY DIVIDEND Neil Woodford, 24 March 2017 Source: Morgan Stanley, Woodford. Past performance cannot be relied upon as a guide to future performance. Here we can see the performance of the FTSE All Share index since 1926, in capital terms and in total return terms. Over nine decades, an investor’s capital has appreciated at a compound annual growth rate of 5.4% – this is an attractive growth rate in itself but, with dividends reinvested, the total return from UK equities compounds at an annual growth rate of 10.4%. This is a product of what Einstein observed to be the 8th wonder of the world – compound interest! Of course, part of this return can be explained by inflation and, at times, over the last 90 years there’s been a lot of inflation around. But that also highlights one of the other important things that makes equities, and the dividend in particular, special. Equities are real assets – they are stakes in real companies, operating in the real economy, which generate revenues, profits and cash flows that can rise with inflation. With those cash flows, companies pay their dividends which also tend to rise with inflation. Investing in equities therefore comes with an in-built inflation advantage which very few other asset classes can match. Cash and fixed-interest investments are nominal asset classes – they cannot protect an investor from the erosive impact of inflation. The dividend has always been important to me as an investor and it always will be. The dividend isn’t ordinary – if anything it is extraordinary. And by selecting the most attractive and sustainable dividends, I aim to deliver extraordinary long-term returns to investors. Find out more about the new CF Woodford Income Focus Fund What are the risks? The value of investments and any income from them may go down as well as up, so you may get back less than you invested Past performance cannot be relied upon as a guide to future performance The annual management charge applicable to the funds is charged to capital, so the income of the funds may be higher but capital growth may be restricted or capital may be eroded The funds may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits The funds may invest in overseas securities and be exposed to currencies other than pound sterling. The CF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation The CF Woodford Equity Income Fund may invest in unquoted securities, which may be less liquid and more difficult to realise than publicly traded securities Important information Before investing, you should read the Key Investor Information Document (KIID) for the fund, and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice. THE EXTRAORDINARY DIVIDEND Neil Woodford, 24 March 2017 You should note that capital is at risk with these investments and you may get back less than you invested. The value of the fund or trust as well as any income paid will fluctuate which may partly be the result of exchange rate changes. The price of shares in the Woodford Patient Capital Trust is determined by market supply and demand, and this may be different to the net asset value of the trust. The Woodford Patient Capital Trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust. Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy. Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose Woodford Patient Capital Trust investors to the risk of capital losses. As it can take years for young businesses to fulfil their potential, this investment requires patience. Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority.