Scottish Mortgage, City of London and Alliance Trust are all featured among the Association of Investment Companies’ list of dividend heroes.
In what was a landmark year for UK dividends after their 41 per cent fall, the fact that some investment trusts were able to continue raising dividends could be reassuring to investors.
According to data from the AIC, six investment companies have now increased dividends for 50 or more consecutive years.
The City of London Investment Trust, Bankers Investment Trust and Alliance Trust are at the top with 54 years of consecutive increases.
Meanwhile, four other investment trusts announced their 50th annual increase while others reached the landmarks of 30 and 40 years of dividend increases.
Annabel Brodie-Smith, communications director of the AIC, said: “Against the challenging backdrop of 2020 it’s encouraging to see that investment companies’ structural benefits came to the fore and delivered for investors.
“Investment companies’ ability to save up to 15 per cent of their income each year to boost payouts in difficult years is a huge income advantage and has helped the dividend heroes achieve their remarkable track records of consistent dividend growth, with four stretching as far back as the 1960s.”
Research from the AIC showed that 85 per cent of equity-income paying investment companies increased or maintained their dividends in 2020, compared to 23 per cent of income-paying open-ended funds.
“Despite investment companies’ impressive record, it’s important investors remember that dividends are never guaranteed,” Brodie-Smith added.
Investment company dividend heroes
Source: AIC/FE Analytics
Alex Crooke’s £1.4bn Bankers Investment Trust has increased its dividend for a 54th year, alongside Job Curtis’ £1.6bn City of London Investment Trust.
However, it is the Bankers strategy that has proved to better choice for investors over three, five and 10 years, posting a total return of 229.26 per cent over the decade, compared with 91.14 per cent for the City of London trust.
The final trust to make 54 consecutive years of increased dividends is the £2.8bn Alliance Trust, run by the team at Willis Towers Watson. The portfolio is run on a multimanager basis, with the Willis Towers Watson team appointing eight ‘best-in-class’ stock pickers with different but complementary investment approaches and styles to run the trust’s sub-portfolios.
Craig Baker, chairman of the Alliance Trust Investment Committee and global chief investment officer of Willis Towers Watson, said: “Being a global investment trust, with global diversification across eight stock pickers, Alliance Trust has delivered resilient total returns through a period of unprecedented volatility.
“Despite a challenging backdrop for generating income caused by Covid, we have been able to increase our own dividends year-on-year since the 1960s, with an increase last year of 3 per cent, making this our 54th consecutive annual increase and maintaining the AIC Dividend Hero status.”
Baker explained that, unlike open-ended funds, investment trusts are able to retain 15 per cent of annual income for revenue reserves and Alliance Trust has one of the largest revenue reserves of any trust – totalling £99.2m, which equates to over two years of dividend cover.
“If shareholders and the court approve plans to convert the company’s £645.3m merger reserve into distributable reserves, we will have significant potential to support continued dividend growth for many years to come,” he added.
The only trust on the list in the IT Flexible sector, the £1.5bn Caledonia Investments trust, has increased its dividend for 52 consecutive years.
However, the fund performance has lagged its peers and it sits in the lower quartiles over most time periods.
Both BMO Global Smaller Companies and F&C Investment Trust have both raised their dividends for 50 consecutive years.
Paul Niven, manager of the £4.2bn F&C trust, said: “We were delighted to announce a dividend increase for the 50th consecutive year for shareholders, in what was a challenging period for markets.
“Our aim is to deliver both capital and income growth over the long term; in years where income exceeds dividend payments, we are able to hold back some of that to draw on in future years, allowing us to smooth income through time for investors.”
There are a few trusts nearing the 50-year milestone: the £760.8m Scottish American Investment Company has increased its dividends for 47 consecutive years and is run by FE fundinfo Alpha Managers, James Dow and Toby Ross.
A global equity trust, it aims to grow the dividend at a faster rate than inflation by increasing capital and growing income.
The largest trust in the list and top of performers is the £16.4bn Scottish Mortgage Investment Trust, managed by James Anderson and Tom Slater.
While the five FE fundinfo Crown Rated trust has struggled in terms of returns in the last couple of months, its performance over the short and longer-term has far outpaced its peers.
Performance of fund vs sector & benchmark over 10yrs
Source: FE Analytics
Over 10 years, the trust has made a total return of 834.92 per cent, compared to 194.05 per cent for the FTSE All World index and 193.12 per cent for the average member of the IT Global sector.
It is 5 per cent geared, has a yield of 0.29 per cent and is trading at a 2.7 per cent discount to net-asset-value (NAV).