arg questions, page-6

Coffeesnob, to answer your questions:

1. I'd be careful choosing LICs based on dividend yield: when a stock goes ex-dividend, the share price typically falls by an amount equal to the dividend to be paid. In other words, when a company pays you a 5% dividend, this means that they are effectively forcing you to sell 5% of your shares and receive the money as cash, rather than keeping it invested. Personally, I would happy if these LICs paid no dividends, because that way they could keep the money within the company and reinvest it for me better I could. This is why Berkshire Hathaway shareholders are happy to receive no dividends: they know that Warren Buffett will do a better job of managing their money than they can.

However, of course a lot of shareholders in LICs are retirees who like to receive dividends as a form of income.

The most important numbers to look at, rather than dividend yield, are total shareholder return (TSR) and total portfolio return (TPR). TSR is the total return that a shareholder receives as a combination of dividend yield and capital growth; TPR is the total return generated by the company, in terms of dividends paid plus change in NTA of the underlying portfolio.

Have a look at my other post, which shows how dividend yield does not always indicate which stocks will be the best performers: http://www.hotcopper.com.au/post_threadview.asp?fid=1&tid=1074440&msgno=4899196#4899196

2. Similarly, I wouldn't choose stocks based on how many shares of each company you can afford. Whether you buy 458 ARG shares or 162 MLT shares, either way you effectively own a $3000 share in one of these huge diversified portfolios. If one of these companies decided to split each share into 10 shares, or consolidate 10 shares into 1, it would have no effect on the underlying portfolio. Therefore, the number of shares you buy doesn't really matter. Moreover, if you look at some of the newer LICs, such as CTN, which trades at around 90c, you could buy over 3,000 of these shares...but that doesn't make it a better investment.

3. Agreed with what gj0201 has to say about the management of these LICs. I attended last year's MLT AGM and it sure is daggy as hell. There was a woman behind me doing some knitting during the AGM, and the only other person there under the age of 60 was the company's auditor. The management are a bunch of conservative old blokes, most of whom have been with the company for many, many years and take reasonable salaries. These are the kind of people you want to have managing your money.

4. As for ARG vs CHO, I like them both and hold them both but as you said, CHO is looking very undervalued at the moment (discount to NTA of ~10%). Considering that, I'd probably go for CHO now but I think there's a place for both in your portfolio. That said, if you're planning to hang onto these shares for years, it doesn't really matter what price you pay. By the time you retire, they'll be worth a lot more :)

Hope that helps. Keep us posted with your decisions...