Nick Train investment trust shakes up dividend

Struggling Nick Train vehicle Finsbury Growth & Income Ord has adopted an enhanced dividend policy in a bid to win over investors.

The board used the trust’s latest half-year results to announce that the policy, to be adopted from the start of October, would see the dividend increase by at least 50% to around 30p per share. That would bump the trust’s share price dividend yield from its late May level of 2.6% to 3.9%. 

• Don’t miss the next big IPO: get the latest IPO news and updates straight to your inbox
• What’s the state of play for Nick Train?

The dividend, which is funded from a combination of revenue and capital, will be determined on a pence per share basis rather than by reference to yield based on NAV or share price after that, with the board looking to keep increasing it.

The board sought to explain the change by pointing both to the heightened level of share buybacks in the UK equity market, which has come at the expense of dividends in some cases, and to “evolving practice across the investment trust sector”.

The board added that the trust offers “a comparatively low yield relative to its peer group”. 

Its yield of around 2.7% on 27 May puts it at the bottom of the AIC’s UK Equity Income sector on this front, with the average coming to around 3.9%. 

But this is definitely not a new phenomenon, with FGT long having yielded much less than peers.

Joining the crowd?

The high-flying Temple Bar Ord set the precedent for enhanced dividend policies in the UK equity income space last year, adopting such an approach in response to the share buyback effect. We later saw Dunedin Income Growth Ord go down the same path, although others have resisted taking such an approach.

“Dividend hero” poster boy City of London Ord has come out against such an approach, with manager Job Curtis last year telling us it would involve “robbing Peter to pay Paul”.

Enhanced dividend policies have become widespread throughout the investment trust space in recent years. They do give a fairly predictable level of income and can allow trusts to invest for total returns rather than focusing too closely on yields.

• Serious concerns raised about savers raiding retirement pots
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

As the FGT board put it, its switch should give shareholders “a more appealing dividend policy and offer improved clarity and certainty over their future income”.

However an “enhanced” payout could fall if the trust’s net asset value (NAV) has fallen, and in theory a trust could be forced to sell into a falling market to fund a dividend, in the worst-case scenario.