City of London outperforms and extends dividend record to 59 years

Throughout the year, City of London Ord (LSE:CTY) produced a net asset value (NAV) return of 16.8%, outstripping the FTSE All-Share’s return of 11.2% and the peer group return of 12.6%. The share price return of 21.3% outperformed, due to the emergence of a premium to NAV for the shares over the period.

The dividend hero also extended its income streak, notching up a 59th consecutive increase in rise in payouts.

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The portfolio’s stock selection was key to the impressive performance. The banking sector remains an overweight position as of around 18 months ago with a sector weighting of 14%, with NatWest Group (LSE:NWG) proving to be a strong performer for the trust.

Holding a smaller position in AstraZeneca (LSE:AZN) relative to the index was the biggest stock contributor to performance. Pharmaceutical stocks have suffered from uncertainty relating to the Trump administration’s policies on the pricing of medicines in the US.

The numbers in detail (for financial year to 30 June 2025)

NAV (Net Asset Value) Return: +16.8%
Share Price Return: +21.3%
Benchmark Return (FTSE All-Share): +11.2%
Dividend: 21.3p(vs 20.6p prior year)
Premium/Discount: 2%(vs -2.2% prior year)
Gearing: 5.3%(vs 7.1% prior year)

Outlook

Geopolitical and inflationary concerns remain, in particular the future impact of the tariffs imposed by the US as they feed through to companies and economies globally. The outlook for the UK has become more uncertain with government finances increasingly under pressure. It is worth highlighting that many UK-listed companies earn a significant portion of their revenues overseas, shielding the trust from the fortunes of the UK economy.

Portfolio

Over the past year, the portfolio’s investment in overseas-listed companies decreased from 10% to 8%. Investment in FTSE 100 companies rose from 78% to 81%, reflecting a belief that UK shares continue to offer better value than overseas equivalents.

Three new positions were added — Admiral Group (LSE:ADM), TP ICAP GROUP (LSE:TCAP), and Harbour Energy (LSE:HBR) — while holdings in Shell (LSE:SHEL), REITs (Land Securities Group (LSE:LAND) and British Land Co (LSE:BLND)), and utilities (Severn Trent (LSE:SVT)) were strengthened.

Sales included Direct Line, Eni SpA (MTA:ENI), Pennon Group (LSE:PNN), SSE (LSE:SSE), DFS Furniture (LSE:DFS), and Burberry Group (LSE:BRBY), while takeover activity led to exits from Britvic and DS Smith, with some proceeds reinvested into Mondi (LSE:MNDI). Profits were also realised in 3i Group Ord (LSE:III) and BAE Systems (LSE:BA.) after strong performance.

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Overall, the adjustments reflect a tilt towards large, cash-generative businesses, discounted property plays, and select energy exposure, while reducing weaker or fully valued positions.

Gearing

The gearing level for the year was 5.3%, which declined over the year and was a positive contributor to returns for the reported period. While borrowing costs for many have risen since 2022, CTY had the foresight before interest rates rose to establish low-cost debt facilities for the next few decades.

Dividend

The dividend of 21.3p per share represents growth of 3.4% on the prior year and therefore a 59th consecutive year of dividend growth for CTY.

The growth in dividends from the banking sector was the most important positive contributor for the second year in a row. Revenue reserves remain healthy, with revenue reserves per share increasing by 5.3% to 9.9p.

ii View

In what was a strong period for the UK equity market, the trust performed well, delivering for investors. In NAV terms, a return of 16.8%, bettered the FTSE All-Share’s 11.2% return by 5.6%. The portfolio companies performed well with stock selection the top contributor to performance, while the gearing level of 5.3% added further value.

Shareholders were rewarded with a share price return of 21.8%. This is due to the trust’s shares moving from a discount to a premium over the year, which is more common for the trust which tends to trade at a small premium.

The board’s adherence to a policy of issuing shares at a premium and buying back at a discount over the past 15 years has enhanced NAV and, of particular note, kept the prevailing premium and discount to NAV within narrow bands rarely exceeding 3%.

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With its long-standing focus on reliable income, the dividend remains central to the trust’s appeal. CTY delivered dividend growth of 3.4%, extending its remarkable record to 59 consecutive years of rising payouts – unmatched by any other UK investment trust. An increase to the revenue reserves per share of 5.3% ensures a sufficient buffer for future distributions remains intact.

The portfolio of 80 to 90 companies invests across a range of sectors and boasts a very diversified source of revenue across industries and geographies, with nearly two-thirds of revenues originating overseas. CTY’s management and board maximise the attributes of the trust structure, retaining a portion of income for the revenue reserve to assure future dividend payouts, and leveraging modestly to enhance returns over time (doing so at an enviably cheap rate).

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CTY has been managed by Job Curtis since 1991 and he has over four decades of experience. David Smith has worked with Curtis for more than 10 years and was appointed deputy fund manager in 2021. Both benefit from Henderson’s large, international analyst resource.

The yearly ongoing charge figure of 0.37% is the cheapest in its sector. Its size, in being well over £2 billion, has good scale at a time where we are seeing rapid consolidation among smaller vehicles. CTY’s yield of 4.4% outstrips comparable equity income peers (AIC UK Equity Income – 4.1%) and index (FTSE All-Share – 3.5%), meaning the trust remains a very attractive proposition for income seekers.

Overall, the performance over the year underscores its ability to meet its dual objectives of income and capital growth.

The trust forms part of interactive investor’s Super 60 list of ideas as an income option.