.......These are particularly uncertain and unsettling times for markets. But arguably the biggest immediate worry is the crisis that has befallen BP and the threat to its dividend. BP is one of the most widely-held shares in mainstream mutual fund and investment trust portfolios. It has been popular with income trusts for what has been till now its substantial and reliable dividend stream. It accounts for some £16 in every £100 of dividend payments by FTSE 100 companies. If that dividend is passed or reduced, its raison d’être ceases for funds competing on income.
Big dividend payers such as BP have become ever more important to the equity income-seeker in the wake of the banking crisis that has removed former dividend favourites such as HBOS, Lloyds TSB, Royal Bank of Scotland and the publicly quoted mortgage lenders from the income lists. More immediately problematic has been the slump in value of BP shares that has hit income funds. ......
...... I am grateful to a perspicacious note on the BP dilemma from IFA Alan Steel, the Sage of Linlithgow. Alan points out that the alternative of tracker funds, much touted in recent years, lock investors into FTSE 100 stocks whatever happens to the constituents of that index and at prices that may not be at all advantageous to investors.
Alan is a champion of unconstrained funds, where managers can roam over different sectors, countries and companies to select best value for investors. There has been a pronounced move in this direction in investment trusts. .......
Quote courtesy of The Scotsman
Monday 7 June 2010
