Jeff Prestridge  

Investment trust captures dividend story best

Jeff Prestridge

Jeff Prestridge

“2020 is on track to deliver the fifth consecutive year of record dividends.”

Although the coronavirus could well put a spanner in the works – dampening down global economic growth, company profits and corporate generosity on the dividend front – most of the evidence confirms Mr Lofthouse’s positive outlook.

Corporate earnings, especially in the US, should continue to grow this year.

While I do not expect all financial advisers to agree with me, I think the best way to capture this dividend story for clients is through investment trusts.

This is because trusts have far greater control than funds over the way they distribute income from their shareholdings to loyal shareholders.

By being allowed to build up income reserves, they can smooth out the dividend ride for investors – maybe tucking some income away in the trust’s reserves when the dividend backdrop is healthy, and then drawing upon some of it to top up income payments to shareholders when the wider dividend environment is more hostile.

I was reminded of the beauty of this income control mechanism last week when the Scottish American Investment Company confirmed its 40th year of consecutive dividend increases.

Managed by investment behemoth Baillie Gifford, the £630m global trust increased its dividend by 3.3 per cent.

With just short of a year’s dividends tucked away in reserves, you would put money on 40 becoming 41 this time next year.

Scottish American is one of 21 investment trusts with annual dividend growth records going back at least 20 years.

Like Scottish American, many of these 21 are global in investment outlook so are perfectly positioned to benefit from the positive dividend picture painted by Janus Henderson. 

But there are also a smattering of UK equity income trusts among them.

Perfect fare, I would have thought, for income-seeking clients.

Jeff Prestridge is personal finance editor of The Mail on Sunday