Investment trusts maintain progressive dividends despite manager concerns on commodities

City of London Investment Trust (CTY), which we count among our IC Top 100 Funds, Bankers Investment Trust (BNKR) and Alliance Trust (ATST) have each clocked up 49 years of dividend growth, with City of London poised to reach a half-century later this year.

"After a bumpy start to the year, with some well-known companies cutting their dividends, it's reassuring for investors that some investment companies have an unrivalled record of dividend increases," said Annabel Brodie-Smith, communications director at the AIC. "Many investment companies have been able to increase their dividends every year because they have the unique ability to squirrel away some of the income they receive each year for bad times ahead."

The AIC also published its list of Next Generation Dividend Heroes, which includes trusts that have increased their dividends consecutively for between 10 and 20 years. These include four IC Top 100 Funds: Perpetual Income & Growth (PLI), which has raised its dividend for 16 consecutive years, BlackRock Smaller Companies (BRSC) and Henderson Smaller Companies (HSL), which have both increased it for 12 consecutive years, and Murray International (MYI), which has increased it for 10 consecutive years. Murray International's results are due out later this month so this may soon increase to 11 consecutive years.

Job Curtis, manager of City of London, said: "The fall in sterling compared with the US dollar in recent months has given a positive translation effect to those dividend payments from UK companies that are paid in US dollars. Special dividends have been announced by a variety of companies, including Croda (CRDA), ITV (ITV), Direct Line (DLG) and Hiscox (HSX). Lloyds Bank (LLOY) pleased the market with a significant increase in its final dividend and also by announcing a special dividend. By contrast, Barclays (BARC) surprised the market by guiding to a cut in its 2016 dividend.

"In the mining sector, which has been adversely affected by the fall in commodity prices, dividend cuts were widespread, as had been generally expected by investors.

"Looking ahead, there remain both stock-specific risks and opportunities so there are advantages to obtaining equity income from a diversified investment trust with revenue reserves."

Meanwhile Alex Crooke, manager of Bankers, a Global sector trust said: "Overall we are positive on the prospects for dividend growth in the year ahead, although sectors sensitive to falling commodity prices are likely to cut payouts to shareholders. Consequently, stockpicking is vital in these market conditions so that income investors can avoid those stocks likely to produce poor returns.

"It remains possible to find companies in all regions that are expected to raise their dividends by around 5-6 per cent, but, as always, it is essential not to overpay for this income. As a result, we have a preference for the telecoms and healthcare sectors, where we can find stocks with decent dividend yields, strong free cash flow characteristics and attractive dividend growth potential."

AIC dividend heroes

Source: AIC using Morningstar

*IC Top 100 Fund

Dividend heroes: the next generation

**Please note Northern Investors is realising its portfolio.

Source: AIC using Morningstar

*IC Top 100 Fund