Re: Essential Investment Trusts
Posted: July 29th, 2021, 12:06 pm
absolutezero wrote:Lootman wrote:absolutezero wrote:Just a thought about European Assets Trust (EAT).
I've been looking through its portfolio. Lots of low yielding shares, but the trust as whole is over 5% yield.
Seems the income comes from selling shares - based on 6% of the NAV at 31st December each year
How sustainable is this, do we think?
I would refer you to an entire recent topic on ITs that pay income out of capital:
viewtopic.php?f=54&t=29770
It works fine as long as markets do not have multi-year bear markets.
Thank you.
It does seem a bit of a house of cards, working on the idea that share prices will only ever increase.... (like house prices)
It doesn't work on the idea that share prices will only ever increase -- if the NAV goes down you get less of a dividend, and, yes, if there is a multi-year bear market then they could eventually run out of distributable reserve (which is revenue reserve plus previously realised capital gains) to top up the revenue received to the 6% of NAV mark, in which case they'll simply say, sorry, but the dividend this year is just the revenue received (i.e. dividends they received from their holdings).
Personally I just don't get the appeal of this % of NAV approach (no matter how low or high the % is and whether or not it requires topping up from capital reserves), as most "income" investors seek reliability of the level of income, and the % of NAV approach guarantees that won't happen....