50% of investment trusts now pay quarterly dividends – is this good news?

Funds and Investment Trusts February 21, 2018 by Tom Bailey

Half of all investment companies now pay dividends on a quarterly basis, according to new research by the Association of Investment Companies. This is part of an increased trend towards quarterly payments. In 2016, 43 per cent of investment companies paid dividends quarterly, rising to 46 per cent in 2017. 

The move to quarterly payments has come at the expense of tri-annual and bi-annual dividend payments.

There are now no longer any investment companies that pay out dividends three times a year, following the move by European Assets – the only trust to do so previously – onto a quarterly payment basis.

Bi-annual payments have also declined in number this year. The number of investment companies paying out bi-annually has fallen by two percentage points to 26 per cent. One in five investment companies continues to pay an annual dividend, while just eight pay monthly dividends. 

This move towards quarterly dividend payments at the expense of tri- or bi-annual payments is being driven by the increasing search for income among investors as they reach retirement age. 

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‘This has been a growing trend in the industry,’ notes Adrian Lowcock, investment director at Architas. He points out that as more people reach retirement, more are taking the income. Quarterly payments give investors a more consistent income and allow investment companies to ‘smooth over’ payouts. 

‘Most listed stocks pay an interim and annual dividend,’ notes Jason Hollands, managing director of Tilney Bestinvest. ‘So where investment companies that hold equity portfolios are paying out quarterly, this is simply a case of smoothing out the distribution schedule.’

However, he adds, while ‘a more regular pay-out profile is possibly welcome for those investors who choose to draw an income,’ it may come at the expense of investors less focused on income and wishing to reinvest their dividends. 

Hollands notes: ‘many investors choose to reinvest dividends and therefore the regularity of pay-outs is not an issue; more frequent distributions could, potentially, create additional costs, depending on whether their broker charges dealing fees for dividend reinvestment.’

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