Investments  

Investment trusts start increasing dividend payouts

Investment trusts start increasing dividend payouts

Pensioners are set to benefit from rising dividend payouts from investment trusts, the manager of the City of London Investment Trust has claimed.

Job Curtis, who has managed the £1.2bn trust since 1991, said that many large-caps, such as financials, had started to pay dividends again.

He said: “Their capital base is much stronger and they have been rebuilding their balance sheets, so I think the potential for dividend growth is strong here and across UK retail banking.”

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Investment trusts can use revenue reserves to smooth the dividend payout, by retaining up to 15 per cent of the dividend in good years, so in more difficult years when the dividend growth in the market is not that good, the trust can still pay out.

According to Mr Curtis, in 2014, there were some special dividends, so the trust paid out 90.9 per cent and held back 9.1 per cent into the reserve.

He said: “Obviously, with equities, people are taking on risk and volatility, but the income stream from dividends is secure, which makes it more comforting for people looking for a steady income in retirement.

“For example, five years ago, we paid out more than we got in because we can smooth the payout, so this is a good thing for investors needing income.”

The trust recently increased its payout by 3.7 per cent, meaning the total dividend was now 4.1 per cent.

This comes as the trust produced a net asset value total return of 6.4 per cent for the year to 30 June 2015

It follows returns of 14.7 per cent and 23.8 per cent for the two previous financial years.

The investment trust’s performance was marginally better (0.2 per cent) than its benchmark, the AIC UK Equity Income sector.

Adviser view

Angie Taylor, chartered financial planner for Glasgow-based Independent Financial Advice World, said: “There are many investment trusts that have been producing steady, attractive dividends that provide good sources of income.

“Like any advice, research and due diligence are key, but investment trusts should definitely be considered when researching and considering investment vehicles to generate income.”

Background

Philip Remnant, the City of London Investment Trust’s chairman, said: “I am confident that City of London’s strategy, which is focused on providing long-term growth in income and capital, will continue to enhance shareholder value over the longer term.

“This year has been one of steady progress, and our dividend was increased for the 49th consecutive year.”