The equity income trust has a long track record of increasing its dividend and returning more than its peers.
Income investor favourite City of London investment trust has added three new positions in the past six months, and dropped two stocks.
The Super 60 recommended fund, which yields 4.6% and has raised its dividend for more than 50 consecutive years, revealed in its half-year results to 31 December 2022 that it had purchased DS Smith, Morgan Advanced Materials and NatWest shares.
DS Smith is a leading paper and packaging producer in the UK and Europe with an emphasis on recycling. At today’s share price of £3.50 it yields 4.3%.
Morgan Advanced Materials develops, manufactures and markets technological materials and components across international markets. It currently yields 3%.
NatWest is focused on the UK, where it is one of the leading banks and financial services groups. The shares currently yield 4%.
These purchases were partly financed by the sales of Brewin Dolphin, the private client wealth manager taken over by Royal Bank of Canada, and Synthomer, the chemicals company, after profit warnings and the suspension of its dividend.
In the final six months of last year, the net asset value (NAV) of the trust rose 4.5% and the share price rose 5.1%. This compared with a 5.1% return for its benchmark, the FTSE All-Share index, and an average NAV rise of 5.1% for UK Equity Income investment trusts. The trust’s charge was just 0.38% for the six-month period.
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Sir Laurie Magnus, chair of the trust, says that equities offer the prospect of dividend growth and can therefore provide some element of hedge against inflation, even as gilt yields rise and offer investors an income alternative that did not exist just a year ago.
In his investment outlook, he said: “The combination of a continuing tight labour market, higher wage settlements and strikes in various sectors of the economy is likely to keep inflation above the Bank of England's 2% target for some time. This will result in continuing elevated interest rates when compared with recent years since 2009, albeit remaining below the higher rates prevailing before the financial crisis in 2008.”
Numis, the stockbroker, said it continues to like City of London as a core holding for investors looking for income from UK shares.
It said: “Job Curtis has managed the fund since 1991 and his track record over the past 10 years has been strong, with the NAV total returns of 103% (7.3% a year) compared to 88% (6.5% a year) for the FTSE All-Share.
“The fund also pays an attractive yield of 4.7% compared to an average of 3.8% for the sector and the fund has increased its dividend every year since 1967. The fund is the largest within its peer group, with net assets of £2 billion and shareholders benefit from a low ongoing charges ratio of 0.38%.”
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