Recent buy – Vanguard FTSE All-World High Dividend Yield

There is a first time for everything and today was the first time I bought a product from Vanguard.In fact, I added a couple of shares of Vanguard’s Vanguard FTSE All-World High Dividend Yield listed in Ireland with ISIN IE00B8GKDB10 to my portfolio. The funds website advertises an ongoing charge fee (OCF) which includes the annual management charge (I checked with the prospectus) of 0.29%. As per the most recent factsheet, which was as of end of November, the fund showed data like price earnings ratio’s and so on. However, below the numbers it again said that the data was per end of September. So, assuming that the underlying fundamentals stayed the same I calculated the price earnings ratio’s etc as of today. The table below shows what I arrived at.

30/09/2016 23/01/2017
Price in USD 49.48 51.08
P/E 19.1 19.7
Earnings Yield 5.2% 5.1%
Dividend Yield 3.8% 3.7%
Payout Ratio 73% 72.6%
Return on equity 16% 16.0%
Sustainable growth rate 4.4% 4.4%

What is relatively easy to see from the table above is that I should have bought this fund in September as opposed today 🙂 However, apart from the gift of hindgsight, the table also indicates that I should bag a 3.7% dividend yield with a payout ratio of abut 73%. Admittedly, the payout ratio is high but the Return on equity is actually quite alright, too. From both of these I can calculate a sustainable growth rate which if this fund were a company would be the maximum growth rate this company could grow at without it having to source additional capital. The formula is (100% – payout ratio ) x Return on equity. Essentially, it is what the company has left after paying its dividend reinvested at the return the company earns on its equity. This ratio does have some shortcomings like unstable returns on equity as well as that it shows the maximum growth rate as opposed to what the company will actually grow at. However, doing the calculations, the sustainable growth rate I arrive at is 4.4%. Adding my annual dividend yield of 3.7% on top of it, should give me 8.1% return before fees or 7.8% after ongoing charges (OCF) ie excluding transaction costs at my broker. Not bad he? Well, it would be if we would be living in a perfect world. Most likely, the multiple of this fund is going to change as a consequence of whatever newsflow the real world will come up with this year. Then the economics of the underlying companies will change. More revenues, less margin, lower taxes, …, …, …  ? Your guess as to whatever combination of this is going to happen is as good as mine I would say. That is why I like diversification. This ETF actually holds 1197 companies and the largest one is Microsoft at 2.7% of the fund, followed by Exxon at 2.1%. All portfolio holdings of this physically index replicating ETF are on Vanguard’s website, too. The top ten holdings account for approximately 17% of the fund. Also, by buying this ETF, I estimate that I added about USD 70 to my dividend income for 2017 which brings me one step closer to my goals for the year. I also updated my portfolio page to reflect this transaction.

Have you bought or sold anything lately? Do you think the market is attractively price? I saw that even Buffett struck another deal today in Germany. I might be adding to a few other positions here and there to bring me even closer to my goals but there is no hurry. When and if I do, you will of course find a post about it on this blog.

Disclaimer: None of the content of this site is to be considered investment advice. Readers have to form their own opinion about which investments are right for them and take full responsibility for their own actions.

2 thoughts on “Recent buy – Vanguard FTSE All-World High Dividend Yield

  1. Hi DIB,
    You might find more up to date information on the ETF stats at the “Financial Advisors” site at vanguard.co.uk. There’s a button at the top left you can use to go to the Advisors site. Currently it’s showing data as of 31-December (the Portfolio Data page, not the Factsheet pdf file).

    I think it’s a good move to hold a diverse ETF as an element of a stock portfolio – I own a similar mutual fund (High Yield International). The high payout ratio is really just a result from the index being a high-yield index. It’s most likely to hold “value” stocks which are high yield from lower priced stocks or else low-growth / stable companies with a high payout ratio.

    Anyway, congrats on the buy – it’s another step to FI.
    Best wishes,
    -DL

    Like

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