FTSE100 total return index

[LeoSayer]

I'm sure this is easily answered, but why is the performance of the total return index so much higher than the normal FTSE100 index?

The chart below shows it's +35% compared to +3% for the normal FTSE100.

https://markets.ft.com/data/indices/tearsheet/summ...

[bitchstewie]

Dividends.

[LeoSayer]

I understand it includes reinvested dividends, I just didn't expect such a disparity in performance.

[bitchstewie]

LeoSayer said:

I understand it includes reinvested dividends, I just didn't expect such a disparity in performance.

The UK doesn't have many large growth companies basically.

One reason so many people who want a dependable income invest in the FTSE and ignore the share price rather than investing for total return and taking what they need.

Maybe if I'm that situation I'll get it a bit more but the figures look pretty stark and I think it highlights the need to look beyond the UK.

[LeoSayer]

Thanks. Looking at the 5 year chart below, this trend only seems to be recent.

Is this telling me that UK shares are now undervalued compared to the dividends they pay or is it telling me the longer term outlook in not so good?

[anonymous-user]

LeoSayer said:

Is this telling me that UK shares are now undervalued compared to the dividends they pay or is it telling me the longer term outlook in not so good?

FTSE yields around 4% and S&P yields around 2%.

Assuming similar levels of profitability, that 2% difference has to be going somewhere. S&P companies tend to reinvest more into growing their own businesses - increasing the value of their companies and leading to greater share price growth.

In a sense, to make a true comparison you need to look not just at total return but also imagine that a FTSE shareholder reinvested his extra 2% of dividend yield and cumulate that as well.

Despite the high yield I don't think FTSE shares are undervalued. Shareholders will feel a harder hit to their income if there's a global slowdown. There's also the political situation...

Edited by anonymous-user on Saturday 15th February 14:00

[MisterJD]

rockin said:

FTSE yields around 4% and S&P yields around 2%.

Assuming similar levels of profitability, that 2% difference has to be going somewhere. S&P companies tend to reinvest more into growing their own businesses - increasing the value of their companies and leading to greater share price growth.

In a sense, to make a true comparison you need to look not just at total return but also imagine that a FTSE shareholder reinvested his extra 2% of dividend yield and cumulate that as well.

Despite the high yield I don't think FTSE shares are undervalued. Shareholders will feel a harder hit to their income if there's a global slowdown. There's also the political situation...

Edited by rockin on Saturday 15th February 14:00

Buybacks by S&P companies.

[Jon39]

LeoSayer said:

I'm sure this is easily answered, but why is the performance of the total return index so much higher than the normal FTSE100 index?

The chart below shows it's +35% compared to +3% for the normal FTSE100.

I cannot understand this.
Particularly as your chart extract is only for a 6 month period.

To keep performance monitoring simple, I have always maintained my own portfolio record keeping on a calendar year basis.
Start every 1st January with the indices and every holding on a gain of 0.00%.

During 2019 the indices moved as follows;

FTSE All-Share + 14.2%
FTSE 100 .........+ 12.1%

The total returns (incl. dividends);

FTSE All-Share + 19.17%
FTSE 100 .........+ 17.3%

That all makes sense, because we know the dividend yield was around 5% throughout last year.

The FT chart shown is for a different period and therefore unrelated to the above figures, but how they arrive at 3% and 35% I do not know.
I think of the FT as being generally accurate, so presumably there is an explanation.
I will stick with my own 32 year old method, especially as last year my result was +22% total return. Yet another win against the FTSE All-Share Total Return index.

Edited by Jon39 on Saturday 15th February 20:15

[WindyCommon]

Jon39 said:

The FT chart shown is for a different period and therefore unrelated to the above figures, but how they arrive at 3% and 35% I do not know.

You couldn't script some of this "content"...

[LeoSayer]

Jon39 said:

I cannot understand this.
Particularly as your chart extract is only for a 6 month period.

My later post shows the same chart for 5 years, which shows the gap is a recent phenomenon.

[BobToc]

rockin said:

Despite the high yield I don't think FTSE shares are undervalued. Shareholders will feel a harder hit to their income if there's a global slowdown. There's also the political situation...

The other thing I’d keep in mind is that about 50% of dividends are accounted for by 10 companies (Royal Dutch Shell, HSBC, BP, British American Tobacco, GlaxoSmithKline, Rio Tinto, AstraZeneca, Lloyds, BHP Group and Vodafone). Will leave it to readers to decide how stable that is or what the prospects for growth of those companies is.

[Jon39]

LeoSayer said:

Jon39 said:

I cannot understand this.
Particularly as your chart extract is only for a 6 month period.

My later post shows the same chart for 5 years, which shows the gap is a recent phenomenon.

Yes I noticed that aspect. A mystery to me.

[Jon39]

BobToc said:

The other thing I’d keep in mind is that about 50% of dividends are accounted for by 10 companies (Royal Dutch Shell, HSBC, BP, British American Tobacco, GlaxoSmithKline, Rio Tinto, AstraZeneca, Lloyds, BHP Group and Vodafone). Will leave it to readers to decide how stable that is or what the prospects for growth of those companies is.

Perhaps ironically, of your first five companies, only BAT have been increasing their dividends during the past few years.
( I know BP recently did a slight increase. )

[BobToc]

Jon39 said:

Perhaps ironically, of your first five companies, only BAT have been increasing their dividends during the past few years.
( I know BP recently did a slight increase. )

They’re not my five companies! But it does rather go to the point about what to read into a higher dividend yield and what it says about returns in the future.

[Jon39]

BobToc said:

They’re not my five companies! But it does rather go to the point about what to read into a higher dividend yield and what it says about returns in the future.

I should have said, the first five companies on your list, Bob.

Shell have an interesting record with their dividend payments. It is said that they have never reduced their dividend since the Second World War. Obviously tells us nothing about the future, but certainly a record to be proud of, especially with a cyclical commodity, and who would want to be in the CEOs shoes ending that pattern.

[dmahon]

This might be a good thread to ask.

I’m invested in a Vanguard FTSE unit tracker.

If the FTSE ends up dead flat for the year, am I likely to get 4-5% growth based on dividends?

[WindyCommon]

dmahon said:

This might be a good thread to ask.

I’m invested in a Vanguard FTSE unit tracker.

If the FTSE ends up dead flat for the year, am I likely to get 4-5% growth based on dividends?

Yes, if you own the Acc units.

If you own the Inc units, you’ll receive it as income.

[FredClogs]

LeoSayer said:

I'm sure this is easily answered, but why is the performance of the total return index so much higher than the normal FTSE100 index?

The chart below shows it's +35% compared to +3% for the normal FTSE100.

https://markets.ft.com/data/indices/tearsheet/summ...

You what mate. The graph is for the Ftse Et index... ET being Environmental Technologies... Its nowt to do with the Total return index or the Ftse 100.

Innit.

Edited by FredClogs on Sunday 16th February 20:59

[JulianPH]

FredClogs said:

LeoSayer said:

I'm sure this is easily answered, but why is the performance of the total return index so much higher than the normal FTSE100 index?

The chart below shows it's +35% compared to +3% for the normal FTSE100.

https://markets.ft.com/data/indices/tearsheet/summ...

You what mate. The graph is for the Ftse Et index... ET being Environmental Technologies... Its nowt to do with the Total return index or the Ftse 100.

Innit.

Edited by FredClogs on Sunday 16th February 20:59

^^^ This is a massively important factor!

[LeoSayer]

Oh my God, what an an idiot!

Good spot.