For quite some time now, I have wanted to do an article on “Divi-X” and mutual funds. I sat down on several occasions to do so, but the problem was that there really weren’t any good performing mutual funds that pay a decent dividend. As a matter of fact, as of today, my screen search for mutual funds that paid dividends over 2% returned 256 mutual funds. Of those 256 funds, only three had five year returns in excess of 15%. Of those three, only one looked reasonable. That fund was the PIMCO StocksPLUS® Long Duration Fund Institutional Class (PSLDX) but that’s not the one I’m going to write about this time.
Giving some thought to the impressive returns “Divi-X” added to Visa (V) and Disney (DIS) despite their very small yields, I thought I would change my screen search criteria to funds with distribution yields lower than two percent but higher than 0.50% and total returns in excess of 15%. That search fared better with fifty-two results. Of those fifty-two, I of course chose the fund with the highest yield (1.97%) to feature in this article. That fund is the Lazard Global Listed Infrastructure Inst (GLIFX) Fund.
It’s important to point out that this is not an article to showcase a particular mutual fund, but to show that, as with ETF’s and Index Funds, “Divi-X” can work with mutual funds as well.
The Lazard Global Listed Infrastructure Portfolio presents a unique diversification opportunity by investing in high-quality preferred infrastructure companies. The Portfolio seeks long-term, low-volatility returns that exceed inflation and may be a powerful complement to real assets, private equity infrastructure, and global equity allocations.
The Last Five Years – Lazard Global Listed Infrastructure Inst (GLIFX)
Leverage Projection Worksheet
This is what our ‘Leverage Projection Worksheet’ would’ve have looked like then assuming a $10,000 investment:
If we had purchased Lazard Global Listed Infrastructure Inst (GLIFX) Fund on May 14, 2012, we would have had a purchase price of $10.16. The distribution yield at the time was 1.97%. A huge word of caution: this fund does not pay a consistent distribution. It is imperative that you do not use the highest distribution amount towards your purchase. You are much better off using the lowest, or next to lowest distribution amount paid out over the previous twelve months when making your purchase decision. As in the case of this fund, they generally have a generous payout at year-end, so if you choose one of the lower distribution amounts and it still doesn’t cover your preferred minimum requirement, the large year-end payout should more than make up for the short fall. Under no circumstances should you set up a purchase where the distribution doesn’t at least cover the interest expense.
Anyway, I settled on the current distribution amount of $.05 which was more than enough to cover interest. Because the distribution yield of 1.97% was so low, I maxed out the “Multiplier Pick” at 154. This allowed me to pick up an extra 332.69 shares for a total of 1316.945 shares. This levered us in at a very acceptable 25.26%.
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And this is how our ‘Leverage Projection Worksheet’ decisions would have treated us five years later:
A few things about this chart:
- Both “Div-X” and ‘Without’ surpassed our ‘Expected Return’ from the beginning.
- “Divi-X” surpassed ‘Without’ from the beginning and throughout.
- At the end of five years, “Divi-X” would have rewarded you with an extra $3,181.08 more than ‘Without’ ($24,175.18 less $20,994.10). That’s a full 31.81% more!
- “Divi-X” would have doubled your investment in March of 2016. ‘Without’ or ‘All Cash’ wouldn’t have doubled your investment until a full year later in March of 2017.
Returns in Percentages
Dividend History and Growth
Now let’s take a look at our dividend picture:
This first chart is called the ‘20YR Yield Chart.’ Its purpose, from day one, is to give you an idea of the possible future trend of your dividend growth with and without the use of “Divi-X.” The purple bar represents someone who does not use “Divi-X” for their investment. Year after year, the yield percentage will stay the same until the company raises, lowers, or eliminates their dividend payout.
The blue bar represents your ‘Proj “Divi-X” Yield’ or your projected “Divi-X” yield on cost. This bar increases every year based on the assumption that the company will raise its dividend every year. There’s a 100% chance this will not be accurate due to the inconsistency of dividend payout rates over time, but it does give you an idea of what effect regular dividend increases can have on your investment.
Finally, and most importantly, is the green bar, or the “Divi-X” Yield’ bar. This bar will almost always underperform in the beginning of your investment because, as I say in my book (‘The Dividend Times: An Introduction to The “Divi-X” System’), in the beginning, you will be sacrificing short-term yield for long-term capital appreciation.
Because the distribution payouts of (GLIFX) are so inconsistent and the year-end payouts so generous, projecting dividends for 20 years out is not feasible so I just zeroed out the dividends after five years. All that is left is the actual dividend history for the last five years.
5 Year Dividend Growth Rate
The chart below shows the comparison of the ‘Dividend Growth Rate’ between “Divi-X” and ‘Without’ over the last five years. This chart piggybacks on the ‘20YR Yield Chart.’ Its purpose is to show you how much faster the “Divi-X” yield grows over ‘Without.’ However, because of the large differences in the annual year-end payouts of (GLIFX), the dividend growth rate is all over the place.
Running Leverage Rate
‘The "Divi-X" System Workbook’ monitors one's 'Running Leverage Rate' to keep the user aware of if and when a deteriorating share price increases an investor's risk level beyond their acceptable risk tolerance level.
A few things about this chart:
- When we took our position, we leveraged in at 25.26%
- After five short years, because of share price appreciation, interest reduction, and huge year-end payouts, we now leverage in at only 0.00%. That’s right! No more leverage. We would now own our extra 332.69 shares free and clear! So now, for as long as we decided to hold our position, we would get shareholder appreciation and dividends on 1316.945 shares while someone who didn’t use “Divi-X” would only receive shareholder appreciation and dividends on 984.255 shares. That’s one of the huge benefits of using “Divi-X!”
The Next Five Years
Let’s take a look at what our next five years will hopefully bring. Incidentally, the following charts are what a new ‘Leverage Projection’ looks like in ‘The “Divi-X” System Workbook’ until projected data is replaced with actual data.
Leverage Projection Worksheet
Things are dramatically different this year than five years ago. Most notable are:
- The share price then was $10.16, now $16.40
- Interest rates have crept up a bit making interest expense a little more of a factor in our investment decision but not too much.
- The number of shares we can afford to leverage. Then – 332.69; Now – only 59.14.
- And the dividend itself. Then - $0.05; Now - $0.03. Believe me, it makes a big difference.
As you can see from the image below, last year’s distributions were again, inconsistent. I probably could’ve chosen the $0.0497 distribution to base my leverage projection on and been ok but I’m choosing to play it extra safe and go with the $0.03 distribution. This only allows us to leverage in at a meager 8.84%. Don’t let that discourage you from making the investment. As with Disney (DIS) and Visa (V), a little leverage can go a long way.
Below, the chart shows our linear milestones we hope to achieve based on the inputs we made in our ‘Leverage Projection Worksheet.’
I’m a little disappointed at the amount of quality dividend paying mutual funds out there, but I know some people use them (I did when I started investing) and I wanted them to know that “Divi-X” could make a big difference for them as well. Till next time, happy investing and many great returns.
Authored by Lee Carroll Wentker
All screen captures are taken from 'The "Divi-X" System Workbook'
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The security showcased here is for learning purposes only. It is not a recommendation or an endorsement of any kind. Do your own due diligence before making any investment.
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