Henderson Far East Income Share Discussion Threads

[tim 3] 03/5/2023 15:00

Exactly ..with interest too!

[lord gnome] 03/5/2023 14:41

We are paying for our own dividends Tim3.

[tim 3] 03/5/2023 13:44

That's the 6p divided gone and some.

[neilyb675] 29/4/2023 12:18

RATHBONES take 5% stake.

[melton john] 27/4/2023 19:34

Interesting facts from Stockopedia
Average number of shares CAGR/Avg +6%
Book value per share CAGR/Avg -5.61%
"For the six months ended 28 February 2023, Henderson Far East Income Limited revenues decreased from £2.6M to -£14.3M. Net loss increased from £604K to £18.1M. Revenues reflect Losses/Gains on investments held at fair decrease from -£8.8M to -£24.8M, Investment income decrease of 7% to £10.1M."
Commiserations to holders, I baled at a loss a while ago to stem my loss but I also believe in the far east economy. Not sure this is the time to get back in or whether HFEL is the right fund for me. It appears to be paying divis by eating its tail. I'll wait and see.

[carpingtris] 27/4/2023 19:08

Not sure about the Russia component... but agree Asia will bounce back and will in time become dominant.

[superiorshares] 27/4/2023 17:48

Having not been invested here for several years, I have no worries about this Capital depreciation.
I am starting a monthly drip May the 7th. How low HFE will go who knows ?.. I am hoping I will have missed most of it .

China , India and Russia will eclipse slow Joe and his Rainbow brigade within 5-10 years .

Asia is the future .

[skinny] 27/4/2023 11:21

A repeat of post 1315.

Price / NAV.

[2wild] 27/4/2023 11:16

NAV therefore about 243p. Not sure a 4% premium is justified here.

[jong] 27/4/2023 09:47

XD Today - 6p per share payable on Friday 26 May.

[tim 3] 22/4/2023 11:20

Same.

Classic example of not looking at dividend yield in isolation.

Capital return has been woeful here.

10 years ago they were over £3.50.

Everything else I own has outperformed these.

My own fault though should have sold ages ago you live and learn.

[petewy] 21/4/2023 14:00

Outlook

The year ahead will hold many challenges but, on balance, we believe the prospects for improved earnings growth and dividend increases are positive. To a large extent, this is driven by the positive impact of a recovering China on the entire region. As the key economy in Asia Pacific, China's improving prospects energise many other markets. China is the region's biggest trading partner, its biggest consumer and its biggest investor. The recovery of China's economy is gaining confidence, with a positive impact on companies across the region. In turn, this is fuelling the ability to expand dividends in a wide range of companies, a far broader dividend growth picture that will benefit our portfolio.

[carpingtris] 20/4/2023 12:44

HENDERSON FAR EAST INCOME LIMITED

2(nd) Interim dividend for year ending 31 August 2023

The directors have declared the second interim dividend of 6.00p (six point zero pence) per ordinary share in respect of the year ending 31 August 2023. The dividend will be paid on 26 May 2023 to shareholders on the register on 28 April 2023 (the record date). The shares will be quoted ex-dividend on 27 April 2023.

[zac0_4] 18/4/2023 11:45

For me the achieved yield of income into the fund holding by holding, in percentage terms, is irrelevant.

[mjames20] 17/4/2023 14:26

There is a slide in the AGM presentation (approx 36 mins in) which attempts to justify the current high yield of the trust in terms of the underlying portfolio including stocks whose yield exceeds the portfolio yield (four are listed - China Shenhua Energy (14.7%), Woodside Energy Group (10.6%), BHP Group (10.4%) and Guangdong Investment (8.8%) however it is not particularly convincing.

They do go on to say that the average dividend growth for the fund is 14.4% which is great and much needed if the trust is to maintain its dividend.

In rough terms the options fees generated are approximately equal to the expenses charged to the revenue account so the entire underlying yield of the portfolio can be distributed to shareholders but I am still finding it hard to see how the underlying yield supports the current covered dividend unless use is made of "churning"/gearing.

I guess the interims which are due out before the end of this month will tell us more.

[mjames20] 17/4/2023 14:12

Another boost to dividends could also come from gearing.

Bank loans at year end 2021 were £25m and £17m at year end 2002. However, cash flow statement shows loan drawdowns of £88m and repayments of £100m suggesting gearing may be considerably higher at times outside of the reporting points. Higher interest rates means a strategy of borrowing to secure income is less effective.

The notes say that there is a loan covenant that total loans cannot exceed 30% of net asset value and that this covenant has been complied with.

The annual report also says that the Company is ungeared at the date of the report (3rd Nov 2022)so the increase and repayment of the borrowings shown in the cash flow could have been transient.No way of telling from the numbers but narrative suggests no gearing and hence no dividend income boost.

[mjames20] 17/4/2023 13:50

Good point on the churning.

HFEL Annual report for August 2022 shows:

Investment at fair value £438m

Proceeds from sale of investments £450m
Purchase of investments £448M

So, proceeds from sale exceed value of the portfolio suggesting that portfolio turnover exceeds 100% supporting the "churning" point.

[bareknee] 14/4/2023 18:04

Goldpig

I think you're right on churning, in that the yield is artificially increased by moving part of the portfolio in, and out, of some companies to increase revenue. Plainly that comes at a cost in terms of dealing costs, though that cost isn't massive.

The underlying ( high divi ) index, such as there is, probably yields 5.5 to 6%. Stock picking ( without churning ) might increase that by 0,5 to 1%. Options likely increase revenue by another 0.5% or a bit more, with churning filling the gap.

I don't think the divi is unsustainable, but maintaining it and increasing it will mostly, but not totally, depend on if the underlying companies continue to increase their divis

At the moment, the constituents are out of favour, and may well remain so, but hopefully they'll eventually rerate with that being, partially reflected in the NAV.

As the old saying goes, you pays your money and takes your pick. Probably like yourself, I wouldn't want HFEL to be a major part of my portfolio, but it's a useful way of diversifying my minor wad, so, while not being ecstatic with it, I'm reasonably comfortable with it.

[goldpiguk] 14/4/2023 17:11

Hi mjames20 and Bareknee.

Cutting the dividend in half would be a worst-case scenario for HFEL, but at some point in the next couple of years, I do expect the dividend to be 'rebased' lower.

I have not done a complete analysis of every HFEL holding, but below are details of the top ten holdings with yields alongside. These cover about a third of holdings in value. (Information taken from Market Screener and HL websites.)

BHP Group yield 6.65%
Woodside Energy yield 11.51%
Macquarie Group yield 3.82%
Samsung yield 2.45%
Macquarie Korea Infrastructure Fund yield 6.45% expected to rise to 7.06%
Rio Tinto yield 7.49%
United Overseas Bank yield 4.37%
Digital Telecommunications Infrastructure Fund yield 8.14%
Vinacapital Vietnam Opportunity Fund yield 3.36%
Taiwan Semiconductor Manufacturing yield 2.05%

Only Woodside Energy in the top ten holdings has a dividend yield above HFEL. Bareknee is right to refer to the use of options, but a close look at the portfolio suggests something else is also at work - churning of shares to flatter income.

In one of the company reports I do remember reading that purchases are timed carefully to maximize dividends, but this is coming with capital destruction. With a decreasing value of capital, choices become more and more limited and the company will eventually have its hand forced.

I would much rather HFEL tackled this sooner rather than later. Unless there is an incredibly strong bull market the current dividend looks unsustainable.

Goldpig

[bareknee] 14/4/2023 16:18

Reducing the divi by up to 50% is a big call and would likely need the trust to change it's stated objectives.

There might ( or might not ) be something to said to stop using options to top up the divis collected from companies to increase the divis paid to trust shareholders, which might then enable the trust to deliver better return capital returns ( which, lets face it, have been poor relatively recently ), but that's a lot of mights.

Even then that would, if my abacus is right, only trim the divi by something like 6 or 7% of the total paid, so, to slash the divi by up to 50% would really need a fundamental realignment of the underlying portfolio.

There's absolutely nothing really wrong with wanting an investment trust with those objectives, but for smallish investors like us, it's probably best to look for a trust which exists like that rather than to hope/wish that HFEL would morph into it.

[mjames20] 14/4/2023 15:28

Last annual report was reasonably positive on the dividend:

"Our forecast for dividends in the current year is cautiously positive. After paying the dividend we will once again be adding a moderate amount to revenue reserve which we will use to smooth the dividend when market conditions are severe."

So, divided fully covered and Asian dividends expected to increase this year hence no reason to expect a cut?

[goldpiguk] 14/4/2023 13:26

Hi terrybill,

Unlike many investment trusts, HFEL doesn't seem to publish an annual (or semi-annual) dividend timetable.
The next dividend is expected near the end of May.

I really do wonder how much longer this trust can continue paying such an elevated dividend. The share price is still at a premium to NAV and I expect a rebasing of the dividend at some point to avoid further capital erosion.

I am still a holder of HFEL and would welcome such a move. I think it is more 'when' and not 'if' a dividend cut happens. Slashing the dividend by up to 50% would still leave a good yield and provide the basis for longer-term capital growth. In the short term, the shares would be likely to move to a discount. That would be the point I would consider adding to my holding.

Goldpig