Investment trust dividends hit a record £1.88bn in 2020 despite a worldwide drought in payouts elsewhere, according to the latest data from Link Group.
The firm’s dividend monitor found that dividends from investment trusts jumped 4.2 per cent in 2020 with an extra £87m being paid out through the year.
This confirmed a long-running trend of consecutive year-on-year growth, with dividends from investment trusts growing by a cumulative 123 per cent in the past 10 years.
Investors elsewhere were not as lucky with Covid-19 having a detrimental effect on dividends around the world. Over 2020, dividends in the UK plunged 38 per cent and worldwide they fell by 12.2 per cent.
Encouragingly for trust investors, 77 per cent of dividends paid out last year came after the pandemic hit, between April and December.
A key part of this success was the cash reserves many trusts had been able to accumulate in the years leading up to the pandemic.
Link’s research shows when Covid-19 became a pandemic, trusts were holding back a combined £1.6bn in cash. This figure was equal to all dividends paid out by trusts in 2018.
Through a geographical breakdown, Links’ analysis shows global equity trusts were the biggest contributor, accounting for a third of the growth. Collectively trusts in this sector raised payouts by 9.3 per cent.
Trusts invested in UK equities also grew their dividends, by 3.8 per cent, but Link Group UK CEO Susan Ring warned that these would be the most susceptible to dividend cuts in the future.
This warning comes after a quarter of UK equities trusts chose to cut payouts after April 2020.
“Global trusts have big reserves and have seen a relatively small reduction in the dividends paid to them by the companies they hold,” said Ring. “Continued dividend growth is likely this year from this group.
“Dividend cuts in the UK have been severe and in our recent dividend monitor we cautioned that it could be 2025 before payouts fully recover.
"Prudence suggests that some reductions are likely, however. Investors will understand the need for these if and when they come, as predictability and stability for the future will often trump immediate outsized returns.”
Trusts investing in UK equities were not the only ones to cut dividends.
Given the challenges facing European equities, a market heavily hit by Covid-19, trusts focusing on these countries also cut dividends. Throughout 2020, dividends from European trusts fell 18 per cent (a cut of £17m) with three quarters of trusts pursuing this course of action after April.
“Typically, continental Europe has not been a region for income investors, so it is no surprise that boards of continental European investment trusts took the opportunity to review their dividend levels to focus on better total return,” commented James de Sausmarez, director and head of investment trusts at Janus Henderson Investors.
“In addition, dividends in Europe were severely impacted last year with the latest Janus Henderson Global Dividend Index revealing that European dividends fell by 28.4 per cent on an underlying basis in 2020.”