Dumb question about dividend handling - investment trusts

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wafflelvr
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Joined: Thu Nov 25, 2021 12:13 pm

Dumb question about dividend handling - investment trusts

Post by wafflelvr »

I feel like this is probably a stupid question, but I am confused.

When I research mutual funds or ETF it is usually very clear whether the dividend handling is Accumalation or Income. Example here, BlackRock Continental European Income Fund D Inc on Morningstar.

With trusts this isn't clear. Example Fidelity Asian Values on the same site.

I'm using Morninstar as an example as I use it a lot, but I find the same everywhere. I can see that Trust is paying dividends, so how are those handled? My assumption is that it is handled as income, but I am not entirely sure.

edit: Sorry. I should have put this in the non-US board. New here and can't see how to move it and am not allowed to delete it
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oldcomputerguy
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Re: Dumb question about dividend handling - investment trusts

Post by oldcomputerguy »

wafflelvr, welcome to the forum! :happy

Don't worry about having posted in the wrong forum, a moderator can always move it for you. I moved your question to the Non-US Investing forum.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
DJN
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Re: Dumb question about dividend handling - investment trusts

Post by DJN »

Hi,
There is a high level section in the Bogleheads Wiki for non US investors here:
https://www.bogleheads.org/wiki/Investment_trusts
If you are UK based and looking for investment trusts the best start might be here:
https://www.theaic.co.uk/aic/analyse-in ... -companies
All the relevant information on each trust is given there.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
DJN
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Re: Dumb question about dividend handling - investment trusts

Post by DJN »

Hi,
UK IT's have to pay "all" the income they generate to investors, or reinvest it back into the fund. Some build long-term track records of dividend growth, but don’t have the same flexibility to potentially deliver growth year in, year out. Some are more focused on growth and place less importance on dividends.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
TedSwippet
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Re: Dumb question about dividend handling - investment trusts

Post by TedSwippet »

wafflelvr wrote: Mon Nov 29, 2021 4:17 am I feel like this is probably a stupid question, but I am confused.
...
I can see that Trust is paying dividends, so how are those handled? My assumption is that it is handled as income, but I am not entirely sure.
It's not a stupid question, but as alluded to by DJN above, there is no single answer. Just as an ordinary corporation might invest profits from past revenues in a new factory or other expansion, or pay those profits out as dividends to shareholders, or some combination of the two, more or less at management discretion, so can an investment trust.

If the trust's managers see stocks that they like and are well priced, they might use dividends from what they already hold to buy them for inclusion into the trust. Or, they might focus instead on paying out dividends from what they hold as a dividend to trust shareholders.

Several investment trusts seem to make continued and increasing dividend payouts a marketing selling point, but not all. So you have to look closely at the trust's prospectus and perhaps also its track record of dividend payouts, to see which way a trust is choosing to run itself.
Valuethinker
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Re: Dumb question about dividend handling - investment trusts

Post by Valuethinker »

wafflelvr wrote: Mon Nov 29, 2021 4:17 am I feel like this is probably a stupid question, but I am confused.

When I research mutual funds or ETF it is usually very clear whether the dividend handling is Accumalation or Income. Example here, BlackRock Continental European Income Fund D Inc on Morningstar.

With trusts this isn't clear. Example Fidelity Asian Values on the same site.

I'm using Morninstar as an example as I use it a lot, but I find the same everywhere. I can see that Trust is paying dividends, so how are those handled? My assumption is that it is handled as income, but I am not entirely sure.

edit: Sorry. I should have put this in the non-US board. New here and can't see how to move it and am not allowed to delete it
Trusts can pay out income or capital.

However UK personal taxes treat them both as dividends (there are procedures for a capital reconstruction but generally I think if it pays a dividend, regardless of source, it is taxed as a dividend).

Normally for prudence (there are some legal restrictions around this) the Board recommends a dividend which is only paid out from the current income (Earnings Per Share) of a trust. If they pay out more than the trust earns in a given year, then they will reduce the retained earnings (Profit & Loss Reserve on the balance sheet). An Uncovered dividend (ie not covered by earnings). They usually avoid doing that because it restricts the Trust's ability to pay out dividends in the future.

You often find they pay a regular dividend which is equal to or greater than (by say, inflation) the previous year's dividend. They then also may pay out special dividends and usually the narrative warns you that will not be repeated. Perhaps after realising an exceptional gain in a given year.
Topic Author
wafflelvr
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Joined: Thu Nov 25, 2021 12:13 pm

Re: Dumb question about dividend handling - investment trusts

Post by wafflelvr »

I appreciate the replies, thanks
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