This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
Income investors have always faced the trade-off between maximising current income and growing dividends in the future. High dividend paying stocks are often ‘cash cows’, that is well-established businesses that generate lots of free cash to distribute but are mature and have limited growth prospects. Dividend growth stocks on the other hand tend to pay lower yields as they use part of their cashflows to reinvest to generate future growth. At a trust level, different boards and portfolio managers will approach this trade-off differently, and investors should be cognisant of their own time horizons when allocating their capital. In this article, we attempt to quantify the scale of the trade-off and the sort of time horizons over which the trade-offs can become impactful.
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