Best investment trusts for dividends revealed

In its list of ‘Dividend Heroes’, published today (March 12), the City of London, Bankers, Alliance, and Caledonia trusts have all increased their dividends every year for more than 50 years. 

So far in 2019, eight investment trusts have announced another year of increases, with F&C Investment Trust confirming its 48th rise. 

This month JPMorgan Claverhouse, Alliance Trust and Scottish American confirmed a dividend rise, offering investors a yield of 3.92 per cent, 1.83 per cent and 3.1 per cent, respectively. 

This followed last month's announcements from Brunner, Witan, Temple Bar, and Bankers trusts, that their 2019 dividend would increase.  

British and American investment trust, which has seen its dividends rise year on year for the past 23 years, currently has the highest dividend yield of those in the list of heroes, at 18.14 per cent. 

Annabel Brodie-Smith, communications director at the AIC, said: "Investment companies have unique benefits when it comes to delivering a dependable and growing dividend to investors.

"They can retain up to 15 per cent of the income they receive each year, meaning they can squirrel away income in good years to boost dividends in leaner ones. 

"This has enabled the 20 dividend heroes to achieve their enviable records of dividend growth, raising dividends for more than 20 years.

"With interest rates still low, the ability of investment companies to pay dependable and rising dividends is as important as ever."

The City of London trust, managed by Job Curtis, is among those with the longest record of dividend increases at 52 years.

According to Mr Curtis the portfolio’s core is built up of companies that can consistently grow both profits and dividends. 

Mr Curtis said: "Even the very largest companies can have sudden severe problems, such as when BP had to stop paying a dividend after the Macondo oil disaster in 2010.

"City of London could not have achieved the 52 years of continuous dividend growth without being an investment trust.

"In the good years for dividends, we retain some earnings to add to our revenue reserves. During periods of dividend cuts, we can draw down our revenue reserve to continue increasing our dividend.

"In the 27 years that I have been City of London’s fund manager, we have used the revenue reserves seven times."

He added: "The investment trust structure undoubtedly has significant advantages in providing investors with consistent growth in income.

"With a 4.3per cent historic dividend yield, as measured by the FTSE All Share Index, UK equities remain attractive for those seeking income. In general, dividend increases from UK companies were satisfactory during the recent corporate results season."

Scott Gallacher, chartered financial planner at Rowley Turton, said: "Whether you’re investing for income or growth, I believe that dividend income should be a key part of most client’s portfolios. 

"This is because it provides a helpful injection into your fund value during flat or falling markets, and during falling markets it can be reinvested to buy more shares at a lower price."

The AIC’s dividend hero investment companies

Source: AIC/Morningstar