It will also show how this dividend growth translates into capital values, and enable investors to customise their investment company portfolio in terms of payments. This will allow them to either smooth monthly income over the year – ensuring there are no periods without dividend payments – or shape the income to meet their own needs.
Building blocks
Income Finder comprises four sections: Income Builder, Dividend Diary, My Income Portfolios, and Guides and Glossary.
Income Builder allows investors to create a portfolio of income-paying investment companies. Investors can sort and select investment trusts based on their dividend frequency, dividend yield, or the month in which dividends are paid. For first-time visitors to Income Builder, there is an interactive tutorial to help them get started.
Dividend Diary shows every investment company dividend payment date for each month from January 2016, helping investors find investment companies that are paying income in the months when they need it. Dividend Diary is updated as investment trusts announce new dividend payment dates, and investors also have the option to include or exclude special dividends in their search.
The My Income Portfolios section gives investors more information about the portfolios they have created, such as dividend cover, five-year dividend growth and the frequency of the dividends. Guides and Glossary provides a range of resources to help income seekers, including videos, articles and jargon busters.
More specifically, these guides show how the skill of an investment company uses compounding to supercharge income and capital growth. Compounding is simply earning interest, not only on the principal but also on the income earned from those original savings – and that from day one.
Table 2 outlines this in simple terms for the benefit of clients.
Table 2: Compound interest in action
| Capital (£) | Interest after 10 years (£) | Interest after 20 years (£) |
Simple interest at 5 per cent a year | 10,000 | 5,000 | 10,000 |
Compound interest at 5 per cent a year | 10,000 | 6,289 | 16,533 |
Source and Copyright: Money Management
Compound interest also shows the importance of the philosophy that underlies all genuine investment companies – invest for safe and growing income, and never risk the principal through stupidity or greed.
Independent investment companies of 19th or early 20th century foundations knew (and indeed still know) that investors only invest for income. Speculators trade for capital gains. But the excitement involved in such speculation was turned into investment theory, driven by the early use of inadequate computing power and a misunderstanding of how very few of the world’s thousands of equities would do better than average.
Most companies produce less than government bonds on an annual basis, so identifying businesses that will regularly pay increasing dividends is a necessary skill. Much more so than the search for alpha, or better-than-average beta, or other nonsense of efficient market theory or factor investing.
