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AIC names top trusts for dividend growth

In an era of low interest rates and investor appetite for income, the Association of Investment Companies has unveiled the investment companies which have increased their dividends year on year
March 4, 2015

City of London Investment Trust and Bankers Investment Trust have both emerged as the most consistent 'dividend heroes' according to a report by the AIC, which compiles a list of the trusts increasing their dividends over consecutive years.

Amid investor hunger for income and growth, the report highlights the investment companies which have consecutively increased dividends to investors, naming City of London Investment Trust and Bankers Investment Trust as the trusts with the longest records.

City of London Investment Trust (CTY) unveiled a 48th consecutive year of dividend increases for 2014 while Bankers Investment Trust (BNKR) announced its own 2014 dividend rise in January 2015. The trust announced its final 2014 dividend payment of 3.8p at the start of the year, taking its total payment for the year to 14.8p, an increase of 4.7 per cent on October 2013 and bringing it in ahead of inflation based on the retail price index (RPI).

Alliance Trust (ATST), Caledonia Investments (CLDN), Foreign & Colonial Investment Trust (FRCL) and F&C Global Smaller Companies (FCS) closely follow. ATST and CLDN have increased their dividends for 47 consecutive years while Foreign & Colonial and F&C Global Smaller Companies has boosted its dividend for 44 consecutive years.

This week F&C confirmed that it was planning another increase ahead of inflation for 2015 on the back of rising investor appetite for income. F&C’s dividend was an increase of 3.3 per cent compared with the previous year based on three quarterly payments of 2.2 pence per share and a final dividend of 2.7p per share to be paid in May 2015, bringing the final dividend to 9.3p.

 

The best-perfoming sectors

Like BNKR and Alliance Trust, F&C is a member of the AIC Global sector.

Of all the 110 investment trusts with 20-plus year histories, trusts under the UK Equity Income heading were the most successful at delivering consistent dividend increases, with 40 per cent of the group increasing dividends for 20 years or more in a row. That compared to nine Global investment companies out of 23 with 20-plus track records increasing dividends consistently over that period.

Those included Brunner Investment Trust (BUT), which recorded 43 consecutive years of dividend increase and Scottish Mortgage Investment Trust (SMT). SMT was voted IC reader's favourite investments trust by a large margin in 2014 and also chosen as a strong option for long-term growth investments by advisers in response to an AIC call for suggestions for funds to meet the needs of pension savers following pension reform.

Fellow IC Top 100 fund Witan Investment Trust (WTAN) is also a top dividend performer in the Global category, increasing dividends for 40 consecutive years. Although WTAN only provides a yield of 1.95 per cent the company had managed to increase it every year up to December 2014 for nearly 40 years.

 

Are the results as good as they look?

While a rising dividend is important, the impact of inflation can erode that increase. The AIC statistics do not take account of whether the percentage increases in the dividend outpace prevailing inflation rates.

Measuring up investment companies’ annual dividends against the rate of Retail Prices Index inflation (RPI) can be a tricky task as companies often report along different financial timelines. However over 2013 and 2014 years both CTY and BNKR reported dividend increases above the rate of inflation. Compared with RPI of 2.4 per cent in 2014 CTY cited a dividend increase of 3.2 per cent while BNKR boosted dividends by 4.7 per cent, less than the 6 per cent increase for the previous year but still comfortably outpacing inflation.

That means that BNKR’s dividend boosts beat inflation for nine in the past 10 years while CTY succeeded in beating inflation with dividend rises every year for the past 10 years. As previous Investors Chronicle research demonstrates, not all trusts have been as successful in the past, including Alliance Trust, which until 2012 had only succeeded in beating inflation with dividend increases once in 10 years.

According to research conducted by the AIC at the end of 2014 dividend increases in the UK Equity Income sector did beat inflation by more than 2 per cent a year over 20 years. According to Morningstar data, £100,000 invested into the average UK Equity Income company on 1 September 1994 would have generated an initial annual income of £3,265 by 31 August 1995 and that by 31 August 2014 it would have grown to £8,139. The annual income modelled would have grown by an average of 5 per cent per year over 20 years, more than 2 per cent above RPI which averaged 2.9 per cent over the same period.

 

AIC's list of dividend heroes

CompanySectorNumber of consecutive years dividend increased
City of London Investment TrustUK Equity Income48
Bankers Investment TrustGlobal48 
Alliance TrustGlobal47
Caledonia InvestmentsGlobal47
Foreign & Colonial Investment TrustGlobal44
F&C Global Smaller CompaniesGlobal44
Brunner Investment TrustGlobal43
JPMorgan Claverhouse Investment TrustUK Equity Income42
Murray IncomeUK Equity Income41
Witan Investment TrustGlobal40
Scottish AmericanGlobal Equity Income35
Merchants TrustUK Equity Income32
Scottish Mortgage Investment TrustGlobal32
Scottish Investment TrustGlobal31
Temple BarUK Equity Income31
Value & IncomeUK Equity Income27

Source: AIC