Member Info for tichtich

Well, that puts me in the green, for the first time since buying last July. I'm glad I didn't sell out when the price was down 30% from there, and the shorters were telling us what a basket case DWL was. 😀

I don't think I want to spend the time to check out AXL thoroughly, so I will probably cash out at some stage

That's rather disappointing. Wind speeds have been lower than predicted for most of the last 10 years, so it wasn't entirely out of the blue. But until now UKW had always insisted that these lower wind levels were within statistically normal variation, so no reason to assume the predictions were too high.

A bit of off topic, but I've been trying out DeepSeek at chat.deepseek.com. Click on the DeepThink button to see its reasoning. It's amazing how human-like its reasoning seems to be. There's also a good video at https://m.youtube.com/watch?v=bOsvI3HYHgI&list=WL&index=1&t=633s&pp=gAQBiAQB

I now have far higher expectations of the near term benefits of AI than I did before.

Market price is not the same thing as capital. The capital lies in the company's ability to make profits over the long term. Private companies that are not up for sale don't have a market price, but that doesn't make them worthless.

"The debt terms are prob the best in the industry".

Yes, they're excellent. That's a large part of why I invested, and why I find it disappointing that they're going to wind down the trust and repay the debt. (I voted against.) It's good news for the lenders, though. The Universities Superannuation Scheme will no doubt be glad to get their money back early. It might help them recoup a little of their losses on Thames Water! 🤔

Still, I guess I should be grateful for the wind down announcement, as it pushed up the share price and let me take some profits. I'll probably hold on to the rest until the wind down is completed, which I suspect may take a few years. I just hope that they call it off if they can't get a decent price for the properties.

At least UKW hasn't fallen as far as some other infrastructure funds and REITs have. It's down about 18% over 5 years, compared with about 40% for FSFL, BSF and TRIG. I think that difference is because it's grown its profits and dividends more than the others.

.... You'd think so, but most commenters here only seem to care about short term share price movements. Most people don't mention profits and dividends, but that's what should matter to long term investors.

Of course it's annoyng if the price has dropped since you bought, and you've missed a chance to buy cheaper. But that's what investing is like. Prices go up and down. It doesn't necessarily mean that the company's prospects have changed significantly. It's best not to keep looking at share prices, though I admit I can't resist.

Unfortunately, given the amount of UKW I already own, I don't feel able to buy more and take advantage of the low price, but at least I'm benefitting a little from cheap buybacks.

The yield is just over 8%, based on the 2024 dividend of 10p. I reckon the 2025 dividend should be 10.35p, based on RPI rising by 3.5% in 2024. That's still not much more than 8% yield on current price. Still a very good yield. The question for investors is whether you think the dividend (with inflation increases) is sustainable over the long term.

That should have been... "Future electricity pricing is going to depend partly on government policy, and investors may be worrying..."

I should stop using keyboard swiping. More trouble than it's worth. 🤔

UKW's target has always been to keep increasing their dividend in line with inflation (RPI), so no real growth. In fact, last year they increased it significantly more than inflation. I think that can be attributed to the 2022/23 windfall from very high electricity prices. I don't expect that to be repeated.

Other things being equal, if they are going to maintain the dividend indefinitely, they need to reinvest surplus cash to make up for wind farms reaching the end of their lives. At the moment they are reinvesting through share buybacks, as they consider that to be better value than buying more wind farms.

Whether they will be able to maintain the dividend (in real terms) indefinitely will depend mainly on the price they can earn for electricity in the future (though only about half their revenue is dependent on electricity prices). Futures electricity pricing is going to depend partly on government policy, and investors may be working that a future government will be less favourable to renewable energy.

Apart from electricity pricing, other relevant factors are wind speeds (will climate change affect those?) and interest rates.

Thanks for the clarification, Jack1988. I thought I'd checked that the 30m FCF was in GBP, but I must have been having a senior moment. 😉

(Starting a new thread, just for the sake of changing the subject line.)

Who cares about the share price, if you're a long term investor? All I care about is the future dividends. Have the risks to future dividends increased? Maybe a little. Higher interest rates will eventually mean higher interest costs. But it's real (inflation adjusted) interest rates that matter in the long term, and I don't expect those to stay high.

As far as I'm concerned, the main risk remains the introduction of zonal electricity pricing. That's bound to happen some time, but the question is how big an effect it will have. As long as the government is committed to expanding renewable energy, they can't make it too disadvantageous, or they'll deter new investment.

@Jonfon

Is that 12p per year or half year? As far as I can see, the last declared FCF was £30m (H1 2024). Share count is about 182m. 40% x £30m / 182m = 6.6p for the half year. That's significantly less than the current 9p per half year dividend.

Yes, most of my stocks are supposedly "interest rate sensitive", like infrastructure funds and REITs, and all of those were down yesterday. I took the opportunity to snap up some PHP today.😉

Trump is a dangerous menace, and somewhat deluded. But he's no moron. He seems to have a natural cleverness when it comes to manipulating people. God help us!

Maybe something to do with the quantity? On Interactive Investor I've seen different prices depending on how much you're selling. Recently I wanted to sell about 11,000 shares (in another company), but I found I could get a better price if I sold under 10,000. So I only sold 9,999.

"That is a very strange disconnect between SP, divi yield and NAV which I really don't understand."

I like to focus on the NAV, as that's based on a discounted cash flow (DCF) calculation, so should take into account the longer term, and not just the current yield and cover.

If you buy at NAV and if the cash flows turn out as assumed (and if they've done the maths correctly) then the rate of return (IRR) should equal the discount rate used in the DCF calculation. The latest published NAV per share was 90.6p, and the weighted average discount rate (levered) was stated to be 9.4%. As seems to be standard for other infrastructure funds I've looked at, the management fees (about 1% of NAV) are not included in the DCF calculation, so we need to deduct those, leaving an annual return (on NAV) of 8.4%. This is nominal, so I adjust for inflation by subtracting the long term inflation rate that is assumed in the DCF, namely 2%, to give a real return of 6.4%. But buying at the current 40% discount to NAV, this rises to 6.4/(1 - 0.4) = 10.6%. (This simplistic way of accounting for the discount is not strictly accurate, since it doesn't take into account the "duration" of the investment, but I believe it is erring on the low, conservative, side.)

Note that this assumes long term inflation of 2%. Personally I'm pessimistic about future inflation, and I think it's wise to consider the effect of higher inflation, let's say 5%. Based on SEIT's own sensitivity analysis, I reckon (very roughly) that 5% inflation would reduce the real returns to about 9%.

On this basis, the current yield of about 11.5% is probably not sustainable in real terms, but the expected returns are still very good.

Of course all of this assumes that the future cash flows turn out as assumed in the NAV calculation. Unfortunately I'm not able to make any assessment of those assumptions.But there are certain respects in which the NAV calculation and my calculation are conservative, and hopefully that will help to balance any over-optimism in the cash flow assumptions. Also, I'd be very happy with a real return of just 7%, so there's some margin of safety in that respect.

"We need someone like Trump, who puts the UK first"

No, we don't need a lawless, lying, narcissistic, hatred-inciting would-be dictator, who puts himself first, not his country or its people. We had a Trump-lite in Boris Johnson, and that was bad enough.

At least we have a decent main in the top job now. Whether he's competent to do the job remains to be seen. He's only 6 months in.

@offmessage

A 4.5% nominal interest rate is only a 1.9% real rate (after adjusting for the current 2.6% rate of inflation). I can't live on 1.9% interest! I'd prefer a risky comfortable life to risk-free starvation. 😉

@Gary59

If you buy the annuity with taxable money in a pension pot, the annuity payments will be treated as income (and taxable as such), but so would be drawdowns from the pot if you didn't buy an annuity. The income would be taxable either way.

If you buy the annuity with non-taxable money (e.g. from an ISA or a pension tax free lump sum), then I believe you only pay income tax on that part of the annuity which is considered to be interest. I believe that most of the annuity would be considered return of capital, and so not taxable. (But please don't take my word for this.)

Interesting discussion on annuities. I was seriously looking at an annuity last year, when annuity rates were about at their highest, somewhere approaching 5% for index linked, unimpaired, single life, age 66. It's probably more like 4.5% today. Considering that 4% is often considered a "safe withdrawal rate" (SWR) for a diversified invested pot, and some people consider that to be on the high side, a safe 4.5% for life seems quite attractive in comparison. Of course, at Redacted's age of 61 it will be lower.

However, with an annuity you're giving up your capital. If you can instead live on just dividends, you can possibly keep your capital intact (if your shares retain their value). Or if you go for a 4% SWR on a diversified pot, you should keep your capital intact if you have a decent sequence of returns. As I have no children, I don't particularly want to have capital left when I die, but I do want the option of cashing in my pot to pay for care, if I need it in my old age.

Anyway, I've decided to stick with my dividend strategy. My portfolio is all in stocks (no bonds) with an average yield of about 8%. I think it would be rather optimistic to expect all those dividends to be maintained in real terms indefinitely, so, if I was starting to take an income today, I would probably only take out 75% of the dividends (equating to a 6% withdrawal), so I would have some over to build up a cash reserve or add more shares. More risky than an annuity, but, if things go well, hopefully I'll get a better income and keep my capital intact.