Investment trust quarterly dividends are on the rise

The number has risen sharply since 2010, when only 17 per cent of investment trusts paid out income quarterly. Several have moved from twice-yearly to quarterly in response to investor demand for income.

New quarterly income-payers include CVC Credit Partners European Opportunities (CCPG), John Laing Environmental Assets Group (JLEN), and The Renewables Infrastructure Group (TRIG), which previously paid twice yearly dividends, and JPMorgan Global Growth & Income (JPGI) which paid an annual dividend.

Other trusts paying out quarterly dividends include high-yielding debt-focused trusts such as Blackstone/ GSO Loan Financing trust (BGLF), which yields 9.52 per cent, and Schroder European Real Estate (SERE) with a 9.05 per cent yield.

Of the 104 quarterly dividend-payers, almost one-fifth are ranked in the UK Equity Income sector, including IC Top 100 Funds City of London Investment Trust (CTY), Diverse Income Trust (DIVI), Edinburgh Investment Trust (EDIN) and Lowland (LWI). Each of those yields more than 3 per cent.

The number of investment trusts opting to pay dividends on a monthly basis has not increased between 2016 and 2017. These are Ediston Property (EPIC), F&C Commercial Property (FCPT), Fair Oaks Income (FAIR), SME Loan (SMEF) and TwentyFour Select Monthly Income (SMIF).

Investment trusts have an advantage over open-ended funds in that they can keep back 15 per cent of their revenue every year in a reserve, so even if in some years the companies they invest in pay out less in dividends, the trusts can maintain or even raise their own dividends by drawing on the reserve.

Of the 10 highest-yielding UK Equity Income investment trusts paying quarterly income, each has a revenue reserve which it could use to pay dividends. The best protected is Murray Income (MUT), which has revenue reserves equivalent to 1.31 times its 2016 dividend, according to Morningstar. The least well protected of these by dividend reserves is Investment Company (INV), with just £0.01m, equivalent to 0.01 times its last full-year dividend.

Protection could be key if dividends fall across the UK market in coming years. In 2016, UK dividends were flattered by the fall in sterling, but in recent years dividends have looked stretched across the FTSE 100 and, according to the Capita Dividend Monitor, the highest-paying companies accounted for an even greater share of total dividends in 2016. The top five payers comprised 38 per cent of the UK total in 2016, up from one-third in 2015.

The top-paying companies in 2016 were Royal Dutch Shell (RDSA), HSBC (HSBA), BP (BP.), GlaxoSmithKline (GSK) and Vodafone (VOD), while the top-paying sector was consumer goods where dividends rose 5.1 per cent to £11.8bn in 2016.

The closed-end structure also means that investment trusts can hold less liquid and often higher yielding assets than UK equities, such as infrastructure and property. And trusts focused on assets such as debt, renewable energy infrastructure and property appear among the top-yielding trusts in 2016. However many are trading on high premiums to net asset value.

New quarterly dividend payers

Source: The AIC, as at 21 February 2017

How well protected are top-yielding UK Equity income trust dividends?

Source: The AIC, Morningstar, as at 28.02.17

Top-yielding quarterly paying investment companies

Source: The AIC, as at 21 February 2017