The 2024 line-up of ‘next generation’ 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, 20 investment trusts have achieved this feat, with five, City of London (LSE:CTY), Bankers (LSE:BNKR), F&C Investment Trust (LSE:FCIT), Scottish Mortgage (LSE:SMT) and Henderson Smaller Companies, being members of interactive investor’s Super 60 list of investment ideas.

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Waiting in the wings to become dividend heroes are 33 trusts that have increased their dividends for 10 or more consecutive years, but fewer than 20.

Trusts joining the next generation list in 2024 include: CT UK High Income (LSE:CHI), Mercantile (LSE:MRC), ICG Enterprise Trust (LSE:ICGT), Canadian General Investments (LSE:CGI), Henderson International Income (LSE:HINT), RIT Capital Partners (LSE:RCP), BBGI Global Infrastructure (LSE:BBGI) and Greencoat UK Wind (LSE:UKW).

Thirteen of the 33 trusts have a dividend yield of over 5%, offering investors high income alongside consistent dividend growth (although bear in mind that this is not guaranteed). In contrast, only seven of the dividend heroes are yielding above that level.

Dividend growth has been higher for the next generation group of trusts. Seven trusts have a five-year annualised dividend growth rate of more than 10%. They are: Fidelity Special Values (LSE:FSV), Law Debenture Corporation (LSE:LWDB), Henderson Opportunities (LSE:HOT), Fidelity European Trust (LSE:FEV), Fidelity China Special Situations (LSE:FCSS), Lindsell Train (LSE:LTI) and CT Private Equity Trust (LSE:CTPE).

In terms of the dividend heroes, only Alliance Trust (LSE:ATST) has achieved annualised double-digit growth over five years, at 13.2%.

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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.  

Three of the trusts in the next generation list are members of the ii Super 60. They are Fidelity Special Values (LSE:FSV), TR Property (LSE:TRY), and Fidelity China Special Situations (LSE:FCSS).  

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 must return all the income generated each year to investors.

The next generation of investment company dividend heroes

Source: AIC and Morningstar. Investment trusts with the same number of years of consecutive dividend increases are ordered by the date the final dividend was declared. Data as at 12 March 2024.