Large dividends pending for income investors

Investment trust dividends to bring some November cheer to shareholders.

During the financial crisis of 2008-09 the majority of UK equity income investment trusts were able to either maintain or increase their dividends, as they dipped into their reserves.

The same has rung true during the Covid-19 crisis. Only half-a-dozen UK trusts have to date cut dividends and in a couple of cases (Temple Bar (LSE:TMPL) and Securities Trust of Scotland (LSE:STS)), the dividend cuts were made following the appointments of new managers. 

With markets getting a boost on Monday following the Pfizer (NYSE:PFE) breakthrough, interactive investor takes a look at several large dividends pending for the remainder of the month (all now ex dividend), that might add some more November cheer for shareholders. There are 6 large dividends pending, with half of these coming from the investment trust sector.

Kyle Caldwell, Collective’s Specialist, interactive investor, says: “When it comes to seeking out consistent income performers, investment trusts are a superior option versus open-ended funds. This is because trusts can hold back up to 15% of dividends received each year, which means they can build up a reserve to bolster payouts in leaner years. In contrast, funds have to distribute all of the income generated by the fund. Therefore, when income dries up as it has done in 2020, a dividend cut looks inevitable for funds. 

“In contrast, just under 20% of trusts have cut or suspended dividends this year.* A total of 11 trusts have raised dividends for 40 years or more, and all of these have pledged, or are on track, to keep those records going. If the dividend drought continues for a prolonged period of time, boards will have tough decisions to make, but in the short term, at least, the ‘rainy day’ reserves are being utilised to weather the dividend storm.”