The largest UK investment trust has admitted it will have to use up some of its cash reserves in order to pay out a rising dividend this year.
In a report to the London Stock Exchange last week, the chairman of the Scottish Mortgage investment trust said in order to pay a dividend of 2.93p per share – a 1 per cent rise on last year – the trust would need to use up 0.7p per share of its revenue reserves.
This decision will leave the trust with just 4p per share in reserves, casting doubt on whether it will be able to consistently raise its future payouts.
Chairman John Scott said: “As revenue reserves deplete, dividends may be constrained by prevailing earnings.”
The trust, managed by Baillie Gifford’s James Anderson and Tom Slater, focuses on growth companies rather than investing for an income, but many long-term shareholders in the trust are reliant on the regular payouts.
Last year the trust removed its previous requirement to raise its dividend in real terms – after inflation – but the managers have expressed a desire to keep the payments rising in order to satisfy shareholders.