Interactive Investor

Five most-held dividend stocks among the biggest income funds

ii experts shed light on the most-held stocks across the 10 largest UK equity income funds and trusts.

23rd June 2020 10:07

Myron Jobson from interactive investor

ii experts shed light on the most-held stocks across the 10 largest UK equity income funds and trusts.

Income investors have been left reeling following a host of cuts and suspensions to dividend payouts, as companies grapple with Covid-19 disruptions. 

But which UK income stocks remain the most held among fund managers of Britain’s largest UK equity income funds and investment trusts? 

interactive investor, the UK’s second-largest direct to consumer investment platform, reveals the five most-popular dividend paying stocks across the 10 largest UK equity income funds and investment trusts* respectively.

Drug companies are dominating, with GlaxoSmithKline (LSE:GSK) and AstraZeneca (LSE:AZN) featuring in the top five of Britain’s 10 largest UK Equity Income funds and investment trusts. 

In investment trust land, RELX (LSE:REL), a publisher of scientific, medical and technical material (and legal textbooks), also features as one of the five most-popular stocks. But investment trust fund managers also seem inclined to turn to cigarettes as well as drug companies, with British American Tobacco (LSE:BATS) among the most-popular stocks.

Funds

GlaxoSmithKline , Imperial Brands (LSE:IMB), BP (LSE:BP.), Phoenix Group (LSE:PHNX), AstraZeneca are the ‘shared favourites’ in rank order among the 10 largest funds in the Investment Association universe.

Of the five stocks, only Imperial Brands has cut its most recent dividend, by a third - the first since listing 24 years ago to help the cigarette maker manage its £14 billion debt and help absorb the coronavirus hit.

BP and Phoenix Group have done the opposite, increasing their most recent dividend payout by 2.5% and 1.74% respectively. GSK and AstraZeneca dividend payments remain unchanged thus far.

Investment trusts

Among the 10 largest investment trusts in the UK Equity Income sector, the top five shared favourites are: British American Tobacco (LSE:BATS), GlaxoSmithKline, RELX, AstraZeneca and Royal Dutch Shell (LSE:RDSB) (in rank order).

Of the group, only Royal Dutch Shell cut its most recent dividend payout, down 66% – the first cut since the Second World War, following the collapse in global oil demand due to the coronavirus pandemic.

RELX’s full year dividend rose 8.55% while and British American Tobacco’s dividend payments remain unchanged. 

Richard Hunter, Head of Markets, interactive investor, says: “In an age of ever-decreasing dividend circles, some stalwarts remain.

“These stocks continue naturally to attract income-seeking funds and trusts, with the nuance being that the direction of travel for these dividends differs.

“For example, among the most widely held within income funds and trusts, some have been in a position to increase their most recent payout, such as BP (2.5%) and RELX (8.55%). Others have been content to maintain their dividend unchanged, such as GlaxoSmithKline, British American Tobacco and AstraZeneca.

“Even those which have decided to reduce their dividend for reasons of fiscal prudence, still offer attractive yields in the current environment. Shell, for example, has an implied yield of 3.5% despite having cut its dividend by two-thirds, while Imperial Brands still has an implied yield of a whopping 8%, even after having cut its payout by a third.

“Questions are increasingly being asked about sustainability, such as with BP given its recent £14 billion write-down after taking a long-term view on a lower oil price. Even so, the defensive nature of a number of these companies should hopefully leave them well placed to continue their status as dividend cornerstones, much to the relief of increasingly starved income-seeking investors. But one thing we have learned this year is that anything can happen.”

Teodor Dilov, Fund Analyst, interactive investor, says: “The ten largest funds and investment trusts tend to be well-established flagship products (some feature on our rated lists). It is interesting to see that Finsbury Growth & Income (LSE:FGT) has now even taken over AIC Dividend Hero City of London (LSE:CTY) to become the largest UK Equity Income investment trust, with assets now pushing £2 billion. Impressive, considering in the 2015 Annual Report and Accounts shareholder funds stood at £674 million. 

“While open-ended funds need to maintain certain liquidity levels to meet redemptions, closed-ended vehicles don’t have the same requirements and so can go further down the market cap and invest in less liquid areas.  More broadly, the overlap of holdings among Britain’s biggest and most loved funds and investment trusts is a reminder of the perils of constructing a diversified income portfolio. By investing in a selection of equity income funds or trusts in the belief you are spreading risk, you may find instead that you are replicating your portfolio. So it is important to look carefully under the bonnet of funds to make sure you have the balance that you wish for.”

The largest UK equity income funds and investment trusts

The 10 largest UK equity income funds by asset under management are: Artemis Income (£4.43 billion); Threadneedle UK Equity Income Fund (£3.63 billion); Trojan Income Fund (£3.54 billion); JOHCM UK Equity Income (£1.97 billion); Royal London UK Equity Income (£1.88 billion); Jupiter Income Trust (£1.29billion); Marlborough Multi Cap Income (£1.17 billion); Schroder Income(£1.15 billion); BNY Mellon UK Income (£1.09 billion) and Aviva Investors UK Listed Equity Income (£1.07 billion).

The 10 largest UK equity income investment trusts are: Finsbury Growth & Income (LSE:FGT) (£1.82 billion); City of London (LSE:CTY) (£1.45 billion); Edinburgh Investment (LSE:EDIN) (£843 million); Law Debenture Corporation (LSE:LWDB) (£632 million); Temple Bar (LSE:TMPL) (£571 million); Murray Income Trust (LSE:MUT) (£506 million); Perpetual Income & Growth (LSE:PLI) (£494 million); Merchants Trust (LSE:MRCH) (£486 million); Dunedin Income Growth (LSE:DIG) £382 million); JPMorgan Claverhouse (LSE:JCH) (£348 million).

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.