Trust to increase dividend despite market chaos

Trust to increase dividend despite market chaos
Job Curtis, manager of the City of London investment trust

The board of the £1.4bn City of London investment trust has confirmed its intention to increase the dividend it pays to clients this year, despite the fund's holdings having been ravaged by the recent market chaos.

This will mark the 54th consecutive year the payout has increased, a record in the UK investment trust market.

Many of the trust's investments have been ravaged by the recent sell-off, with the trust losing 24 per cent over the past three months. 

Oil company Shell, being the trust's largest investment, was hit by the fall in the oil price.

The second largest investment is HSBC bank, which announced, in common with all other listed UK banks, that it wouldn’t pay a dividend this year. 

The largest sector exposure is to financials, which comprises banks and insurers, many of which have cut their dividends.

But in a stock market announcement, the trust’s chairman Phillip Remnant confirmed that its reserves will be used to pay the dividend this year.

He said: “In our interim report in February, I said that the board was confident that it would be able to increase the dividend for a 54th consecutive year. Since then, a number of companies in which we are invested have cancelled their dividends.

"We continue to recognise the importance of dividend income to our shareholders. Over the last 10 years, we have set aside over £30m into revenue reserves to underpin future dividends in circumstances such as we face now. Those reserves stood at £58.3m at 30 June 2019, our last financial year end.

"If in July we need to draw on those reserves to maintain our unique record of annual dividend growth, then it is our intention to do so.”

Unlike open-ended funds, investment trusts are not required to pay out all of the cash they generate each year, and so can keep cash aside for future years.

It is this cash which City of London may use to fund higher dividend payments this year.

The trust has a dividend yield of 5.7 per cent right now, and trades at a premium to its net assets of over 4 per cent, Despite the uncertain market conditions the trust has twice issued new shares in April.