Interactive Investor

Edinburgh Investment Trust to reduce dividends in 2021

4th November 2020 10:06

Hannah Smith from interactive investor

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The trust, formerly managed by Mark Barnett and Neil Woodford, will lower its dividends to a more sustainable level.

The board of the £851 million Edinburgh Investment Trust (LSE:EDIN) is to reduce its dividend to a more “sustainable” level, as sources of income across the UK market come under increasing pressure.

The trust’s first interim dividend for the financial year to 31 March 2021 will be 6p, down from 6.4p for 2020, and will be paid on 27 November.

Total dividends, made up of four ordinary dividends and a special dividend, will be 28.65p per share, the same as the previous year and equivalent to a 6.5% yield on the current share price.

However, from then on the trust will reset annual dividends to 24p per share, equal to a 5.5% yield based on the current share price, and hopes to be able to grow dividends progressively from this level.

Uncertain environment

The board says it “recognises the importance of dividends to shareholders, especially in an uncertain environment and at a time when other sources of income are under pressure”. The trust will be able to support payouts to shareholders by using revenue reserves it has built up over many years, the board adds, which is why it is using these reserves to keep the total dividend at the same level this financial year as in 2019-20.

The board also notes that sustainable dividends matter to shareholders and, even before the pandemic, yield had been harder to find and increasingly concentrated in fewer companies and sectors. UK equity income has been further eroded by the current crisis and structural changes to the economy. 

Edinburgh trust chairman Glen Suarez says: “The board recognises the importance that investors place on a sustainable source of income. While we are keeping the dividend unchanged in total for the current financial year, we are also re-setting the dividend for future years to a level that is more sustainable and offers the potential for future dividend progression. Our investment strategy seeks both capital growth and income and our manager’s total return approach is well placed to navigate the current market environment.”

‘Sensible move’

Investment trust analysts Numis suggest the move by the Edinburgh trust is a positive one and should give the dividend chance to grow again from a lower base.

“In our view, it is sensible to rebase the dividend to a more sustainable level from which it is expected to grow over time,” Numis says.

It notes that other UK equity income trusts are also rebasing their dividends – Temple Bar (LSE:TMPL) has already cut its dividend by 25%, while Troy Income & Growth (LSE:TIGT) is “almost certain” to do similar, following a transition of the portfolio towards a growing yield away from stocks with higher current yields but lower cover and expected growth.

Last year, the Edinburgh trust appointed a new manager, replacing Invesco’s Mark Barnett with James de Uphaugh of Majedie Asset Management after a long period of underperformance. De Uphaugh overhauled the portfolio in March, warning in the trust’s final results to the end of that month that investors should be prepared for dividend cuts in the face of the pandemic and its impact on yields.

 

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