16 investment trusts with 30-year-plus records of growing dividends: how big are their ‘rainy day’ funds?

We name the investment trusts with the longest dividend track records and reveal how much is in the dividend reserve kitty. 

Investment trusts tick the box in terms of generating reliable income growth, with 16 investment trusts achieving the feat of at least three decades’ worth of dividend increases year in, year out.

One of the main advantages of investment trusts over open-ended funds is the dividend reserves, which allows companies to set aside 15% of their annual income for tougher times. Unit trusts, or Oeics, do not have this luxury, which is why investment trusts have more impressive dividend track records, with a total of 16 trusts boasting a record of more than 30 years of dividend growth, through good times and bad.

The financial crisis is a case in point. During the crisis, the majority of UK equity income investment trusts were able to either maintain or increase their dividends, as they dipped into their reserves. In contrast, virtually all the UK equity income open-ended funds had to cut their dividends.

However, going forwards, the key question for existing and new investors is whether these stellar dividend track records can be maintained without compromising overall total returns. The latest issue of Trust, a free supplement inside the November issue of Money Observer, assesses how much longer the 16 investment trusts can keep their runs going. The piece looks at a number of factors, including whether trusts have used the good years to build their revenue reserves to levels that will allow them to keep on raising their dividends, regardless of static or depleted earnings per share.

On this front, the 16 investment trusts are in a healthy position, as the table below shows, with the vast majority having more than a year’s worth of revenue reserves. For further analysis, see the article by Fiona Hamilton in the Trust supplement, which can be found inside the November issue of Money Observer – on sale from 24 October.

Also inside the Trust supplement is an in-depth look at 40 investment trusts that have an open-ended “mirror” fund run by the same manager. We also consider whether managers are taking risk off the table with a general reduction in gearing. And, we ask if there’s a danger that longstanding “dividend hero” trusts could end up compromising on their performance in terms of total returns in order to protect their dividend growth track record.

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The sixteen trusts

Investment trust Consecutive years of
dividend increases
Revenue reserves
City of London 53 0.82
Alliance Trust 52 2.34
Bankers 52 1.75
Caledonia 52 9.1*
BMO Global Smaller Companies 49 1.75
F&C Investment Trust 48 1.65
Brunner 47 1.85
JPMorgan Claverhouse 46 1.49
Murray Income 46 1.09
Witan 44 1.82
Scottish American 39 1.01
Scottish Mortgage 37 0.51
Merchants 37 0.96
Scottish Investment Trust 35 2.57
Temple Bar 35 1.04
Value and Income 32 0.74

Figures to end August 2019 provided by the AIC. *Equating retained earnings to revenue reserves, on the advice of the company secretary.

 

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Comments

Dividends

Very Good, but what is the dividend yield % ps?

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