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Dividends rise at trusts despite Covid-19 market drops

Dividends rise at trusts despite Covid-19 market drops

Dividend payments have been rising among the UK's largest investment trusts for the past 20 years or more, data from the Association of Investment Companies has shown.

In its latest list of Dividend Heroes - trusts which have consistently increased their dividends for 20 or more years in a row - the AIC highlighted those which continue to pay out an income stream to investors regardless of market conditions.

Many of the investment trusts on the list have been paying out dividends throughout the market slumps of the past 50 years, including Black Monday, the Asian crisis, the tech bust and the financial crisis of 2008. 

The City of London Investment Trust, run by Job Curtis; Bankers Investment Trust and Alliance Trust have each had 53 years of consecutive dividend rises. Caledonia Investments has a 52-year record of raising dividends. 

Seven trusts on the list have put dividends up for 40 years or more in a row, such as the F&C Investment Trust and Witan Investment Trust, while another five have been hiking income payouts for more than 30 consecutive years. 

While performance according to the net asset value of the trusts may be faltering as markets have dropped on the back of two black swan events colliding - that of coronavirus and the Russia-Saudi oil stand-off - the underlying dividend levels from many investment trusts have been helping to bolster investors' incomes.

When asked about the reasons behind raising dividends, especially at a time of market crisis when central banks have had to move swiftly to cut rates and announce spending packages, Alex Crooke, fund manager of the Bankers Investment Trust, said it was an important "legacy".

Although advisers have often spoken of the complexity of investment trust structures relative to open-ended fund structures, which can be off-putting for clients who are new to investing, the investment trust structure has actually helped them be more resilient during these market drops, Mr Cooke explained.

He said the global nature of the trust, coupled with the ability of ITs to use revenue reserves, had put the trust and its investors at a "great advantage". 

He said: "Our global reach means access to more areas of growth when certain sectors or countries stumble and the revenue reserve enables the trust to hold back some income in the strong years of corporate dividend growth to pay out in leaner ones.

"We recognise the importance of delivering a reliable and growing income to shareholders and over recent years have built the revenue reserves to cope with the fluctuations of currencies or the need to prioritise asset allocation decisions towards lower yielding markets.”

Investment company dividend heroes at March 16, 2020

Investment company

AIC sector

Number of consecutive years dividend increased

Yield at 13/03/2020

City of London Investment Trust

UK Equity Income

53

6.0

Bankers Investment Trust

Global

53

2.6

Alliance Trust

Global

53

2.2

Caledonia Investments

Flexible Investment

52

2.3

BMO Global Smaller Companies

Global Smaller Companies

49

1.6

F&C Investment Trust

Global

49

2.0

Brunner Investment Trust

Global

48

2.9

JPMorgan Claverhouse Investment Trust

UK Equity Income

46

5.2

Murray Income

UK Equity Income

46

5.0

Witan Investment Trust

Global

45

3.2

Scottish American

Global Equity Income

40

3.4

Merchants Trust

UK Equity Income

37

7.2

Scottish Mortgage Investment Trust

Global

37

0.6

Scottish Investment Trust

Global

36

4.8

Temple Bar

UK Equity Income

36

6.1

Value & Income

UK Equity Income

32

6.1

BMO Capital & Income

UK Equity Income

26

4.7

British & American

UK Equity Income

24

27.6

Schroder Income Growth

UK Equity Income

24

5.9

Invesco Income Growth

UK Equity Income

22

5.2

Perpetual Income & Growth

UK Equity Income

20

6.8

Source: AIC/Morningstar.

According to Annabel Brodie-Smith, communications director of the AIC, the 21 "Dividend Heroes" have been providing "comforting" news amid the market turmoil of the past few weeks. 

She said: "City of London, Bankers and Alliance have increased their dividends for an impressive 53 straight years. To put this in perspective, this means they have been increasing their dividends every year since the Beatles released Sgt. Pepper’s Lonely Hearts Club Band.