The trusts that have increased dividends for 50 years

The Association of Investment Trusts (AIC) Dividend Heroes survey also found that 10 trusts have now increased their dividends for 40 consecutive years or more, seven of which were in the Global sector. These include IC Top 100 Fund F&C Global Smaller Companies (FCS), which has increased dividends for 46 years and yields 0.9 per cent, and Murray Income (MUT), which has increased pay outs for 43 years and yields 4.2 per cent.

Investment trusts are able to hold back up to 15 per cent of their revenue each year, meaning they can build up a reserve to draw on to boost dividends even in years when the companies they invest in cut their dividends.

Job Curtis, manager of City of London Investment Trust, says it would not have been able to grow the dividend for the last 50 years without dipping into its revenue reserves, which it has used in seven out of the 25 years that Mr Curtis has managed this trust.

That was not an issue in the last calendar year, however. In 2016, the trust benefited from the devaluation of sterling following the UK's vote to leave the European Union, resulting in a bumper crop of dividends for UK companies. According to Capita's latest Dividend Monitor, of the £5.2bn headline increase in UK dividends in 2016, £4.8bn was due to the pound's weakness. Without the fall in the pound, UK dividends would only have been 0.6 per cent higher than in 2015, in headline terms.

That makes diversification of income key to the sustainability of investment trust dividends. Alex Crooke, manager of Bankers Investment Trust, says "the key is to invest in companies that themselves focus on cash generation and distributing dividends throughout economic cycles. The current outlook for income is more muted than previous years, partly because dividends, after lagging the recovery of corporate earnings post the 2008 crash, have now caught up. Many companies in the US and Europe are now paying out a relatively high percentage of their earnings as dividends and therefore fund managers need to carefully focus on those industries where earnings are rising."

Mr Crooke is avoiding telecommunications companies, where intense competition and regulation is keeping a lid on prices, and heavy investment in 5G could hit cash flow. Instead, he is looking towards the technology sector, where companies have matured and are well placed to pay out a higher percentage of profits to shareholders.

He anticipates global growth in dividends of between 3 and 5 per cent but says that figure could be higher if the pound continues to fall against overseas currencies. Bankers has almost 30 per cent of its assets in the US and 27.7 per cent in the UK. Its 10 largest holdings include US stocks Apple (US:AAPL), American Tower Corporation (US:AMT) and Alphabet (US:GOOGL).

AIC Dividend heroes 2017

Source: The Association of Investment Companies.

*Northern Investors Company is winding up