19 investment trust dividend heroes weathered the Covid-19 storm

16th March 2021 10:19

Kyle Caldwell from interactive investor

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The income edge for trusts versus funds came into its own during the financial crisis and Covid-19. 

Over the last year, most ‘dividend hero’ investment trusts continued increasing income payments to shareholders.

The annual list of investment trust dividend heroes, which was published on 15 March by the Association of Investment Companies (AIC), shows that 19 have 20-year plus track records of consistently upping dividend payments. This is slightly down on a year ago, when 21 trusts were dividend heroes

Exiting the list are Perpetual Income & Growth, British & American (LSE:BAF) and Temple Bar (LSE:TMPL). Perpetual Income & Growth merged with Murray Income (LSE:MUT) last November, while in the autumn the board of Temple Bar announced a 25% dividend cut at the same that it revealed it would be changing fund management group. RWC Partners took over the trust at the end of October.

Winning promotion to dividend hero status is Aberdeen Standard Equity Income (LSE:ASEI), which has now raised dividends for 20 years on the spin.

The investment trust structure allows trusts to set aside 15% of their annual income for tougher times via their revenue reserves. Open-ended funds do not have this capacity, which is why investment trusts have more impressive dividend track records.

The structural advantage came into its own during the global financial crisis and again during the Covid-19 pandemic. Boards dipped into their reserves to top up income shortfalls from underlying investments so that they could maintain their long track records of raising their dividend year in, year out.

Owing to the Covid-19 pandemic, UK dividends declined by two-fifths in 2020. This marked the worst period for payouts since the Second World War, according to the UK Dividend Monitor report from Link Group.

Global dividend declines were less severe than in UK, at 12%. However, this was a significant headwind for funds and trusts that return income to investors as part of their mandate.

In recent weeks, a number of dividend heroes have pledged to continue drawing on their reserves if an income shortfall continues.

F&C Investment Trust (LSE:FCIT), one of interactive investor’s Super 60 choices, announced its 50th annual increase last week. It said that despite drawing on reserves, it has plenty left in the bank with one year’s worth of annual dividends available.  

Five other trusts have raised dividends for 50 year or more. City of London (LSE:CTY), Bankers (LSE:BNKR) and Alliance Trust (LSE:ATST) lead the way with 54 years of consecutive increases. Caledonia Investments (LSE:CLDN) and BMO Global Smaller Companies (LSE:BGSC) follow, with 52  and 50 years of respective dividend hikes.

Figures from the AIC show that 85% of income-paying trusts (with yields above 1%) increased or held dividends in 2020. In contrast, only 23% of open-ended funds increased their dividends.

Investment trust dividend heroes 

Investment company AIC sector No of consecutive years dividend increased Yield (%) at 12 March 2021
City of London (LSE:CTY) UK Equity Income 54 5.1
Bankers (LSE:BNKR) Global 54 2
Alliance Trust (LSE:ATST) Global 54 1.6
Caledonia Investments (LSE:CLDN) Flexible Investment 52 2.3
BMO Global Smaller Companies (LSE:BGSC) Global Smaller Companies 50 1.1
F&C Investment Trust (LSE:FCIT) Global 50 1.5
Brunner (LSE:BUT) Global 49 2.3
JPMorgan Claverhouse (LSE:JCH) UK Equity Income 48 4.4
Murray Income (LSE:MUT) UK Equity Income 47 4.1
Scottish American (LSE:SAIN) Global Equity Income 47 2.6
Witan (LSE:WTAN) Global 46 2.4
Merchants (LSE:MRCH) UK Equity Income 38 5.7
Scottish Mortgage (LSE:SMT) Global 38 0.3
Scottish Investment Trust (LSE:SCIN) Global 37 3.2
Value and Indexed Property Income (LSE:VIP) UK Equity Income 33 5.7
BMO Capital & Income (LSE:BCI) UK Equity Income 27 3.8
Schroder Income Growth (LSE:SCF) UK Equity Income 25 4.3
Invesco Income Growth (LSE:IVI) UK Equity Income 23 4.3
Aberdeen Standard Equity Income (LSE:ASEI) UK Equity Income 20 6.2

Source: AIC and Morningstar. *Value and Indexed Property Income will shortly move to the Property – UK Commercial sector.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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