Weekly Thoughts 16 May 2014

I know I have flogged this point to death recently – that of income not being determined by value but rather by number of units held – but two recent conversations are so appropriate that I felt I had to mention them.

While chatting with a friend and colleague, he told me that one of his early lessons about income being separate from value was many years ago. His mom received most of her retirement income in the form of dividends from a share portfolio. She never really looked at the value of her investments, so he once asked her if she was not interested in knowing what the value of her portfolio was. Her reply was: “What does it matter, as long as the income is paid?” And she was right. [Share value does not determine income]

Then two months ago, while visiting a client in Johannesburg who receives a quarterly dividend payment from a dividend bearing unit trust fund, I asked my client if she had noticed that each quarter’s dividend was usually higher. She said: “It’s always higher!” And it is. Regardless of market price movement. [Value does not determine income growth]