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I know people talk about the merits of diversification but for income investors it's very tempting to take overweight positions in quality companies like this. I have 30% sunk in here but still sleep soundly at night.
Tichtich - " . . . Your idea of long term seems to be the last 10 years . . . " - I only use this preiod as most of the analysis from Morningstar / Trustnet only goes back 10 years for analysis purposes
" . . . Over the last 30 years LGEN has gone up 6x . . . " - the US stockmarket, which you keep refering to, has gone up 18.5x over the same period
" . . . US stocks on the whole are significantly overpriced . . . " - maybe, maybe not. Some of the so called tech stocks are producing mind boggling returns
" . . . I'm curious to know what your reaction would be if there's a crash . . . " - probably do what I've always done. Sit tight. One of the reasons I maintain a (at present) 17% exposure to dividend payers is to have some income coming in in the event of a market correction.
For your information my portfolio is split as follows geographically: USA 52.5%, UK 18.0%, RoW 25.6% & cash 3.9%
Tomglan - you'll be pleased to know I've taken your advise and created a simple spreadsheet. However, you won't be as pleased to hear my findings!!
I've taken the mid-point in each year between the high/low share prices as the entry point for dividend reinvestment.
So, my simple spreadsheet reveals the following findings. With dividends reinvested over the last 10 years your initial capital would now be worth approximately 79% higher than it was when you started. That's an annualised growth rate of 6.05%. Well short of your 10% pa
I've cross checked my figure with the published annualised return from Morningstar. They state 6.7% over 10 years. I assume the difference is simply because they will have used actual sp figures for reinvestment purposes rather than an average that I've used.
@zac_04
Yes, good to have debate. And no one knows what the future will bring. I'm trying to go for a strategy that will produce less volatile returns.
"However, if a stock price shows a continuous decline over the long term it would be foolish to ignore"
Your idea of long term seems to be the last 10 years. Over the last 30 years LGEN has gone up 6x.
Anyway, I don't judge by past share price movements. As a long term investor I try to value companies by what they're really worth (fair value), not what a possibly irrational market has been willing to pay for them in recent years.
Suppose LGEN's share price didn't change for the next 30 years while its dividend went up in line with inflation of 2.5%. It would then be on a yield of 18%. Why should I assume that the market would price it so ridiculously cheaply? And if it did, I just wouldn't sell. I would continue holding for the dividends for the rest of my life, and hopefully my inheritors would do so to. If I need more cash, I would sell something else that was sensibly priced.
On the other hand, US stocks on the whole are significantly overpriced. It would be rational for those prices to fall somewhat. I'm curious to know what your reaction would be if there's a crash, with your portfolio value halving and then taking years to recover. I'm not saying that will happen, but it's a real possibility.
"Tomglan - how do you get to an averaged annualised return of "just under 10% per year" when (i) you state the average yield has been 6.5% pa, and (ii) the share price is only up 17% over the 10 year period, so an average annualised growth rate of 1.6%?"
You can re-create and verify the ~10% return by creating a simple spreadsheet that maps out the number of shares you'd end up with if you re-invested the dividend each year. Here's a rough calculation of where the 10% comes from though: 6.5% average div yield for the period + 8% average div growth = 14.5% (assuming yield stays constant) - 4.5% due to de-rating of shares (i.e. you purchased the shares with a 5% yield, they now sit at 8% which works out as a -4.8% per year headwind) = ~10% return.
This has value at the moment to my mind but how much it’s recognised is the variable at this point
Now consider this;- Farmer's do not continually buy and sell land because that would largely defeat the purpose of investing in land which is to obtain a profit from raising crops or animals. Similarly manufacturers do not continually buy and sell factories which they have invested in verb sap.
Tichtich - see comments below. I love a good debate! It's good to have to justify your position and test your theories. So long as we're both comfortable with our investment strategy that's ok by me.
" . . . the market price doesn't matter . . . " - it doesn't in isolation but total return is my key measure
" . . . The stock price only matters when you sell . . . " - agree. However, if a stock price shows a continuous decline over the long term it would be foolish to ignore
" . . . you don't need real growth to get good returns, as long as you have a good enough dividend . . . " - that's assuming your capital is not decining and eating into your overall total return
" . . . Are you sure it's not you who sees the US stock market through rose tinted spectacles? . . . " - absolutely not. It was you that brought it into the equation, not me! I'm more of a global equity tracker fund merchant which, accepted, includes a 65% exposure to listed US businesses
Good luck with your investing
@zac_04
Please read my original comment again. My hypothetical was that you hold the stock forever, so the market price doesn't matter. I then went on to talk about selling in the long term. Short term stock prices don't matter if you're holding for the long term. The stock price only matters when you sell.
I assure you, I don't see LGEN through rose tinted spectacles. I'm not recommending it to anyone. It would be a great investment if the dividend actually keeps up with inflation forever, or at least for the very long term, but I'm by no means confident that it will do so, or even come close.
My point was really the general one that you don't need real growth to get good returns, as long as you have a good enough dividend.
Are you sure it's not you who sees the US stock market through rose tinted spectacles? 😉
I've not done it which is stupid but surely the answer is to take the dividend but open a short on ex dividend day and you'll get double bubble.
Gary, I get your point but?, the share price has dropped more than the dividend so currently you haven't made a penny, unless the sp returns to the high it was before exdiv, and theirs no guarantee that will happen, this was over £3 a few years ago
aviva/mng/lgen have all dropped more than the dividend, and as far as i'm aware haven't finished dropping, the other option would have been to sell them off before exdiv and buy them back for less
Tichtich - don't forget, with a static share price, the inflation adjusted value of your capital is in decline by about 2.5% pa.
So, your "8.6% p.a. real (inflation adjusted) return" is nearer 6.0% taking the capital inflation adjusted value into consideration. That's assuming the share price doesn't continue to fall year on year, of course!
I might add that I hold LGEN but don't view my investment here through rose tinted spectacles!!
Plus lgen paid dividends during COVID period when lots suspended payments.Stick with lgen and top up large when sp dips under 2 quid a pop, you will end up a winner.
I look at it like this, my 8 grand buy of LGEN some time ago brings me in about £725 per year in dividends. If I were to put this into a savings account paying 4.5% I would get £360 in interest. The maths seem very straightforward to me & before anyone questions this I'm talking here about ISA's so no tax to pay.
My plan was to put my £200K ISA in a few different income stocks paying an average 7% interest, bringing in about £14K per year & so far I'm doing better than this. I sleep very well knowing that I am well diversified & invested in quality stocks. Good luck all.
See the table 'Average Stock Market Returns Per Year' here:
https://tradethatswing.com/average-historical-stock-market-returns-for-sp-500-5-year-up-to-150-year-averages/
For the last 20 years and longer periods, inflation adjusted returns were under 8.6%.
@zac_04
I'm taking about much longer term than 10 years. The last 10 years have been exceptional.
Tichtich - " . . . Current yield is about 8.6%. In principle, if you hold forever and the dividend rises with inflation forever, that's an 8.6% p.a. real (inflation adjusted) return. That's better than the long term average from UK or US stock markets (and probably any other stock market) . . . "
No it's not. The US stock market has an annualised average return of 15.45% over the last 10 years (probably longer!)
In February, 2014, the share price was more or less where it is now. So, while you may get an 8.6% dividend, it is 8.6% of a non appreciating asset.
Tomglan - how do you get to an averaged annualised return of "just under 10% per year" when (i) you state the average yield has been 6.5% pa, and (ii) the share price is only up 17% over the 10 year period, so an average annualised growth rate of 1.6%?
Current yield is about 8.6%. In principle, if you hold forever and the dividend rises with inflation forever, that's an 8.6% p.a. real (inflation adjusted) return. That's better than the long term average from UK or US stock markets (and probably any other stock market).
Of course, no one is going to hold forever (though I suppose you could pass the shares down to future generations). However, other things being equal, long term you would expect the share price to rise with inflation if the dividend does (and if it looks like the dividend will continue doing so).
It may be that the reason the yield is so high (share price so low) is that the market doesn't expect the dividend to be maintained indefinitely in real terms. Or it may be less rational considerations. I think many investors are overly fond of growth stocks over dividend stocks. That may explain why the share prices of dividend stocks have suffered since interest rates went up, when higher interest rates are actually worse for growth stocks (other things being equal) because their earnings tend to be further in the future, and therefore must be discounted more.
....that we have a new broom as new Chief Executive. He sensibly stated when appointed (March as I recall) that he needed until June before he would have become fully appraised of the innards of this big and complex organization.
I am awaiting this review before adjusting my largish holding. His record is excellent.
“Considering LGEN sp is the same as it was 10 years ago you have to ask whether it's a good investment.”
A £10,000 investment in 2013 would have bought around 5,000 shares, with dividends re-invested at around the average price for each year you’d now have 10,000 shares. Including the recent dividend, this now totals about £25,000, which equates to an average return of just under 10% per year. This is despite the shares having de-rated to an 8% dividend yield compared to an average of 6.5% for the 10 years.
I think most people agree this is a good investment, but it;s not a great one unless the sp increases a little each year with inflation, for a lot of years i have just held on here and taken the dividends, but then kept watching the sp drop a lot more than the dividend, so this year i sold a third off before xdiv, it all depends now how low this will drop in the coming weeks whether it was all worthwhile or not, the whole point of it is to try and lower my average, i may end up regretting it, time will tell
whatever happens i hope we have a better year with a higher sp by next APRIL
Ah, but if the price recovers each year then you are getting 8% return on your money.
I held this for years but now think it is overplayed. It pays a good dividend but, more often than not, the share price will drop by more than the dividend after the ex date so you lose your capital. Still, everyone has their own strategy.