Four investment trusts have a record of over 50 consecutive years of dividend growth. Find out which trusts make the dividend hero league table.
One of the main advantages in an investment trust or investment company's armoury compared with open-ended funds is its ability to hold dividend reserves. This benefit is once again set to benefit income investors following the steep market falls in recent weeks.
The investment trust structure allows them to set aside 15% of their annual income for tougher times. Open-ended funds do not have this capacity, which is why investment trusts have more impressive dividend track records, with 11 boasting a record of over 40 years of dividend growth.
The structural advantage came into its own during the global financial crisis, with the majority of investment trusts either maintaining or increasing their dividends despite painful falls in payouts from the underlying companies in their portfolios. In stark contrast, the vast majority of open-ended funds cut their income payouts.
In theory, this will play out again in the current Covid-19 crisis. As our feature in the November issue of Money Observer explained, the vast majority of investment trusts that have raised dividends for 40 years or more have more than a year’s worth of dividend reserves. They therefore have the flexibility to meet any income shortfalls that may arise if there is a dividend drought following the sharp market falls.
The boards of the investment trusts could, of course, decide to still cut dividends, despite having capital squirrelled away for a rainy day, but such a move would likely upset shareholders, as they will have become accustomed to reliable dividend growth.
The most recent list of investment trust “Dividend Heroes” published annually (16 March 2020) by the Association of Investment Companies (AIC) shows that four trusts have now achieved the feat of increasing dividends for over 50 years.
City of London Investment Trust, Bankers Investment Trust and Alliance Trust are the top three dividend growers: all have increased their payouts to shareholders for 53 consecutive years. They are closely followed by Caledonia Investments in fourth place, with 52 years of dividend growth.
But it is worth noting that a focus on sustainable dividend growth does not necessarily equate to a particularly high yield. BMO Global Smaller Companies, which is in fifth place in the table with 49 years of dividend growth, only yields 1.6%, for example. Similarly, Scottish Mortgage has a low yield of 0.6%. Both trusts place a far greater emphasis on capital growth over income.
Information on the amount of money held in an investment trust’s revenue reserve account can be obtained through the Association of Investment Companies (AIC) website: www.theaic.co.uk
The AIC’s website also offers Income Finder, a suite of tools and resources to help income-seeking investors research investment companies. Investors can build a virtual portfolio of income-paying investment companies, track dividend dates and see how much income they could have received over a year.
|Company||Sector||Number of consecutive years dividend increased|
|City of London||UK equity income||53|
|BMO Global Smaller Companies||Global||49|
|JPMorgan Claverhouse||UK equity income||46|
|Murray Income||UK equity income||46|
|Scottish American||Global equity income||40|
|Merchants Trust||UK equity income||37|
|Temple Bar||UK equity income||36|
|Value & Income||UK equity income||32|
|BMO Capital Income||UK equity income||26|
|British & American||UK equity income||24|
|Schroder Income Growth||UK equity income||24|
|Invesco Income Growth||UK equity income||22|
|Perpetual Income & Growth||UK equity income||20|