Dividends paid by investment trusts fell in the first half of the year, as UK plc dividends rose, according to new data.
Between January and June 2021, trust investor payouts fell 3.1 per cent to £892m, £29m less than the first six months of last year, according to Link Group’s investment trust dividend snapshot.
This was the first decline since the second half of 2010, when the impact of the 2008 financial crash filtered through to investment trusts.
In contrast, dividends paid by the wider UK stock market rose 8 per cent in the first six months of this year, however the comparison partly benefitted from big dividend cuts seen at the start of the pandemic in 2020.
Throughout the pandemic investment trusts have proven resilient.
In the 18 months between January 2020 and July this year, Link Group’s index of UK dividends fell by 34.6 per cent on an underlying basis, with global dividends dropping 5.9 per cent.
Link calculated that if this was replicated across the investment trust sector, dividends would have fallen by almost a fifth, but in reality payouts rose 2 per cent instead.
Ian Stokes, managing director of corporate markets EMEA at Link Group, said: “It is one of the most reassuring features of investment trusts that they can smooth out the peaks and troughs in dividend income caused by the economic cycle or big one-off shocks.
"The amazing stability of investment trust dividends through the pandemic is a testament to this flexibility. For investors, this regular, predictable income is very welcome indeed.”
Top 10 dividend payers
| Sector | Company | H1 2021 (£m) |
|---|---|---|
| UK Equity Income | City of London Investment Trust | £41.4 |
| Global Equity Income | Murray International Trust plc | £39.2 |
| Global Emerging Markets | Templeton Emerging Markets Investment Trust pls | £35.5 |
| Global | F&C Investment Trust plc | £33.7 |
| UK All Companies | The Mercantile Investment Trust plc | £31.7 |
| Global | Alliance Trust plc | £23.1 |
| Commodities & Natural Resources | Blackrock World Mining Trust plc | £23 |
| Global | Witan Investment Trust plc | £21.9 |
| UK Equity Income | Edinburgh Investment Trust plc | £20.7 |
| UK Smaller Companies | Aberforth Smaller Companies Trust plc | £20.3 |
Further analysis by Link shows that before the pandemic hit investment trusts had accumulated reserves of £2.13bn, made up of past dividends they had received from firms but had held onto.
By mid-July the collective reserve had fallen by £360m, meaning that £22 in every £100 of dividends distributed by investment trusts over the past year has been funded from reserves. About 56 per cent of investment trusts have used their reserves in this way.
The sector that saw the biggest fall was the UK equity income sector, which saw a 9 per cent decline in pay-outs in the first half of the year. The sector makes up a quarter of dividends from equity income trusts.
Link said it expects investment trust dividends to decline further over the next six months as the rebound in stock market dividends will still leave a shortfall in comparison to pre-pandemic levels. The group has estimated that trusts will pay £1.79bn in total in 2021, 3.2 per cent less than in 2020.
Ian Sayers, chief executive of the Association of Investment Companies, said: “For the full year 2020, more than four-fifths (85 per cent) of equity income-paying investment companies increased or maintained their dividends to shareholders despite the impact of the pandemic. In contrast, less than a quarter (23 per cent) of equity income-paying open-ended funds increased their dividends in 2020 and none held dividends at the same level as 2019.
“As Link’s investment trust dividend snapshot highlights, investment companies have important income benefits. Investment companies can hold back dividends from investee companies in a revenue reserve and distribute these dividends to shareholders in tough times such as the pandemic.”
sally.hickey@ft.com
