Interactive Investor

21 trusts that have raised payouts for at least two decades

18th March 2020 12:35

Kyle Caldwell from interactive investor

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Four investment trusts have a record of over 50 consecutive years of dividend growth. Find out which trusts make the dividend hero league table. 

One of the main advantages in an investment trust or investment company's armoury compared with open-ended funds is its ability to hold dividend reserves. This benefit is once again set to benefit income investors following the steep market falls in recent weeks. 

11 of the biggest investment trust discount moves over past month’s steep market falls

The investment trust structure allows them to set aside 15% of their annual income for tougher times. Open-ended funds do not have this capacity, which is why investment trusts have more impressive dividend track records, with 11 boasting a record of over 40 years of dividend growth.

The structural advantage came into its own during the global financial crisis, with the majority of investment trusts either maintaining or increasing their dividends despite painful falls in payouts from the underlying companies in their portfolios. In stark contrast, the vast majority of open-ended funds cut their income payouts.

In theory, this will play out again in the current Covid-19 crisis. As our feature in the November issue of Money Observer explained, the vast majority of investment trusts that have raised dividends for 40 years or more have more than a year’s worth of dividend reserves. They therefore have the flexibility to meet any income shortfalls that may arise if there is a dividend drought following the sharp market falls.

The boards of the investment trusts could, of course, decide to still cut dividends, despite having capital squirrelled away for a rainy day, but such a move would likely upset shareholders, as they will have become accustomed to reliable dividend growth. 

The most recent list of investment trust Dividend Heroes published annually (16 March 2020) by the Association of Investment Companies (AIC) shows that four trusts have now achieved the feat of increasing dividends for over 50 years.

City of London Investment TrustBankers Investment Trust and Alliance Trust are the top three dividend growers: all have increased their payouts to shareholders for 53 consecutive years. They are closely followed by Caledonia Investments in fourth place, with 52 years of dividend growth.

But it is worth noting that a focus on sustainable dividend growth does not necessarily equate to a particularly high yield. BMO Global Smaller Companies, which is in fifth place in the table with 49 years of dividend growth, only yields 1.6%, for example. Similarly, Scottish Mortgage has a low yield of 0.6%. Both trusts place a far greater emphasis on capital growth over income.

Information on the amount of money held in an investment trust’s revenue reserve account can be obtained through the Association of Investment Companies (AIC) website: www.theaic.co.uk

The AIC’s website also offers Income Finder, a suite of tools and resources to help income-seeking investors research investment companies. Investors can build a virtual portfolio of income-paying investment companies, track dividend dates and see how much income they could have received over a year.

     
Company Sector Number of consecutive years dividend increased
City of London UK equity income 53
Bankers Global 53
Alliance Trust Global 53
Caledonia Investments Global 52
BMO Global Smaller Companies Global 49
F&C IT Global 49
Brunner Global 48
JPMorgan Claverhouse UK equity income 46
Murray Income UK equity income 46
Witan Global 45
Scottish American Global equity income 40
Merchants Trust UK equity income 37
Scottish Mortgage Global 37
Scottish IT Global 36
Temple Bar UK equity income 36
Value & Income UK equity income 32
BMO Capital Income UK equity income 26
British & American UK equity income 24
Schroder Income Growth UK equity income 24
Invesco Income Growth UK equity income 22
Perpetual Income & Growth UK equity income 20
Source: AIC     

 

This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

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.

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