Three investment trusts have reached the impressive milestone of 50 years of consecutive dividend increases, according to the Association of Investment Companies' (AIC) newly published list of so-called 'dividend heroes'.
Investors who are looking for trusts that offer consistent dividend growth have a choice of 20 trusts on the list of 'dividend heroes', with at least 20 years of dividend increases under their belt.
REVENUE RESERVE ADVANTAGE
'In the current low interest rate environment, with inflation creeping up, the ability to "smooth" dividends is a unique advantage of the investment company structure,' says Annabel Brodie-Smith, communications director at the AIC.
Investment companies can store up to 15 per cent of the income they receive each year and use this income as reserves to boost dividends when times get tough in subsequent years.
Job Curtis, manager of the City of London Investment Trust, says: 'City of London's record of growing its dividend every year for 50 years has been achieved both by investing in good companies and also through the investment trust structure.
'In the good years for dividends, we add to our revenue reserves, which we are then able to use in more difficult periods. Indeed, in seven of the 25 years during my period as fund manager, we have dipped into revenue reserves to help grow the dividend.'
In Curtis's view, the dividend yield from UK equities remains attractive compared with the main alternatives, and dividend growth has been augmented by the fall in the value of sterling over the last nine months.
Alex Crooke, manager at Bankers Investment Trust, says: 'Bankers has just passed the anniversary of the 50th consecutive year of increasing its annual dividend.
MUTED DIVIDEND OUTLOOK
'The trust last held the dividend flat in the year 1966, following a bumper year of dividends received in 1965 when companies tried to avoid the introduction of capital gains tax for the first time. The record of growth before then goes back all the way to the Second World War.'
He says the key is to invest in companies that themselves focus on cash generation and distributing dividends throughout economic cycles.
The current outlook for income is more muted than in previous years - partly because dividends, after lagging the recovery of corporate earnings post the 2008 crash, have now caught up with them.
Many companies in the US and Europe are now paying out a relatively high percentage of their earnings as dividends and therefore fund managers need to carefully focus on those industries where earnings are rising, argues Crooke.
'Telecommunications looks a place to avoid as both intense competition and regulators are keeping prices low, while potentially investing in 5G and new services could be a drain on cash flow for many years ahead.
'Conversely the technology sector in the US looks well placed, particularly long-established companies. There is good underlying earnings growth and also room to pay out a higher percentage of profits to shareholders.
'Overall global growth in dividends is expected to be in the 3-5 per cent range, but for investors in the UK this may be higher if the pound continues to fall against overseas currencies.'
|Company||Sector||Consecutive years' dividend increased|
|City of London||UK equity income||50|
|F&C Global Smaller Companies||Global||46|
|Foreign & Colonial||Global||46|
|JPMorgan Claverhouse||UK equity income||44|
|Murray Income||UK equity income||43|
|Scottish American||Global equity income||37|
|Merchants||UK equity income||34|
|Temple Bar||UK equity income||33|
|Value & Income||UK equity income||29|
|F&C Capital & Income||UK equity income||23|
|British & American||UK equity income||21|
|Schroder Income Growth||UK equity income||21|
|Northern Investors Company*||Private equity||20|
|*Please note Northern Investors Company is winding up. Source: AIC.|
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