Interactive Investor

The 2023 line-up of ‘next generation’ trust dividend heroes

16th March 2023 12:08

Kyle Caldwell from interactive investor

Of the investment trusts waiting in the wings to become ‘dividend heroes’, there are plenty of high-yield options. 

Investors on the lookout for consistent income payers could turn to the next generation of investment trust dividend heroes.

Overall, these investment companies have higher yields than the “dividend hero” trusts that have raised their payouts year in, year out, for at least two decades.

As reported last week, 18 investment trusts have achieved this feat, with three, City of London (LSE:CTY), F&C Investment Trust (LSE:FCIT), and Scottish Mortgage (LSE:SMT), being members of interactive investor’s Super 60 investment ideas.

Waiting in the wings to become ‘dividend heroes’ are 27 trusts that have increased dividends for 10 or more consecutive years, but fewer than 20.

Joining the next generation list in 2023 are: CT Private Equity Trust (LSE:CTPE), Henderson High Income (LSE:HHI) and Mid Wynd International (LSE:MWY).

The one trust that dropped off the list from a year ago is JPMorgan Elect Managed Income, which merged with JPMorgan Global Growth & Income (LSE:JGGI) a couple of months ago.

Ten of these trusts have a dividend yield of over 4.5%, offering investors high income alongside consistent dividend growth. In contrast, five of the “dividend heroes” are yielding above that level.

In addition, dividend growth has been higher for the new crop. Eight trusts have a five-year annualised dividend growth rate of more than 10%. They are: BlackRock Smaller Companies (LSE:BRSC), Fidelity Special Values (LSE:FSV), Law Debenture Corporation (LSE:LWDB), TR Property (LSE:TRY), Henderson Opportunities (LSE:HOT), Fidelity European Trust (LSE:FEV), Fidelity China Special Situations (LSE:FCSS), and Lindsell Train (LSE:LTI).

In terms of the “dividend heroes” only Alliance Trust (LSE:ATST) has achieved annualised double-digit growth over five years, at 12.77%.

Another difference between the up-and-coming dividend heroes and the old guard is more variety in terms of investment sectors. Asia-Pacific, Europe, China and Infrastructure all feature among next generation dividend hero trusts. For trusts that have increased payouts for between 20 and 56 years, UK and global income strategies dominate.  

Five of the trusts in the next generation list are members of the ii Super 60. They are: Henderson Smaller Companies, Murray International (LSE:MYI), Fidelity Special Values, TR Property, and Fidelity China Special Situations.  

Bear in mind that some of the trusts on the list, such as Lindsell Train, put a much greater emphasis on growth over income.

In addition, it is also worth pointing out that while high yields offer investors the prospect of higher income today, there are no guarantees that this will result in market-beating returns from a total return perspective – when both capital and income are combined. In addition, dividend growth may be higher for trusts with lower yields today.

Income-paying investment trusts have a particular attraction for investors who want a regular cash flow, because they don't have to distribute all the income generated by their assets every year.

Investment trusts can hold back up to 15% each year, which means they can build up a ‘rainy day’ reserve to bolster dividend payouts in leaner years. In contrast, open-ended funds have to return to investors all the income generated each year. 

The next generation of investment company dividend heroes

CompanyInvestment trust sectorNumber of consecutive years dividend increasedDividend yield (%)Five-year annualised dividend growth rate (%)
BlackRock Smaller Companies (LSE:BRSC)UK Smaller Companies192.6210.76
Henderson Smaller Companies (LSE:HSL)UK Smaller Companies192.925.92
Artemis Alpha Trust (LSE:ATS)UK All Companies181.715.43
Murray International (LSE:MYI)Global Equity Income184.242.29
Henderson Far East Income (LSE:HFEL)Asia Pacific Equity Income169.142.73
BlackRock Greater Europe (LSE:BRGE)Europe161.293.90
Schroder Oriental Income (LSE:SOI)Asia Pacific Equity Income164.434.38
CQS New City High Yield (LSE:NCYF)Debt - Loans and Bonds158.700.41
abrdn Asian Income Fund (LSE:AAIF)Asia Pacific Equity Income144.882.13
International Public Partnerships (LSE:INPP)Infrastructure135.262.57
Fidelity Special Values (LSE:FSV)UK All Companies132.7811.00
Lowland (LSE:LWI)UK Equity Income134.824.48
Law Debenture Corporation (LSE:LWDB)UK Equity Income133.5312.01
Invesco Select Trust - Global Equity Income Shares (LSE:IVPG)Global Equity Income122.862.24
TR Property (LSE:TRY)Property Securities124.9011.20
Chelverton UK Dividend Trust (LSE:SDV)UK Equity Income126.356.71
Aberforth Smaller Companies (LSE:ASL)UK Equity Income123.686.25
Henderson Opportunities (LSE:HOT)UK All Companies123.0711.20
Fidelity European Trust (LSE:FEV)Europe112.0410.37
North American Income Trust (LSE:NAIT)North America113.447.42
Dunedin Income Growth (LSE:DIG)UK Smaller Companies114.371.97
Fidelity China Special Situations (LSE:FCSS)China / Greater China112.2521.06
CT Global Managed Portfolio Income (LSE:CMPI)Flexible Investment114.065.39
Lindsell Train (LSE:LTI)Global115.2042.18
CT Private Equity Trust (LSE:CTPE)Private Equity104.679.72
Mid Wynd International Investment Trust (LSE:MWY)Global101.067.57
Henderson High Income (LSE:HHI)UK Equity & Bond Income105.901.55

Sources: Association of Investment Companies and Morningstar. 

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