Investment trusts continue to increase dividends

29 March 2021

Despite UK dividends tumbling by 41% in 2020, six investment companies have notched up half a century of dividend increases, according to the Association of Investment Companies.

City of London, Bankers and Alliance Trust lead the way with 54 years of consecutive increases, followed by Caledonia Investments (52), BMO Global Smaller Companies (50) and F&C Investment Trust (50).

A further five investment companies have increased dividends for more than 40 consecutive years and another four have raised their pay-outs for more than 30 consecutive years.

So far this year, seven dividend hero investment companies have announced an increase. In addition to F&C Investment and Alliance Trust announcing a rise this month, Witan, Scottish American and Brunner announced further increases in February and JPMorgan, Claverhouse and Bankers in January.

Recent research from the AIC also found that 85% of equity income-paying investment companies increased or maintained their dividends in 2020 compared to 23% of income-paying open-ended funds.

Annabel Brodie-Smith, communications director, the Association of Investment Companies, 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% of their income each year to boost pay outs in difficult years is a huge income advantage. It has helped the dividend heroes achieve their remarkable track records of consistent dividend growth.”

Craig Baker, chairman, Alliance Trust Investment Committee, said: “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. Unlike open-ended funds, investment trusts are able to retain 15% of annual income for revenue reserves. This gives investment trusts the ability to bolster returns on rainy days.

“Alliance Trust has one of the largest revenue reserves of any investment trust, totalling £99.2 million which equates to over two years of dividend cover. And 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 growth for many years to come.”

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