Bag dividend growth with Perpetual Income & Growth IT

A particularly good option among these looks to be Perpetual Income and Growth Investment Trust (PLI), run by well-regarded manager Mark Barnett. This trust looks cheap compared with its long-term history because as recently as two ago it traded at a small premium to NAV, but is now on a 7.8 per cent discount – one of the wider discounts among UK equity income trusts.

The trust aims to deliver capital growth and real growth in dividends over the medium to longer term, mainly from UK-listed equities. It yields 3.6 per cent and has grown its dividends every year for the past 10 years. Analysts at Winterflood Securities say that the trust has achieved annualised dividend growth of 7.3 per cent over the past 10 years, one of the highest in the UK equity income sector.

The trust also scrapped its performance fee last year, which has led to a drop in its ongoing charge from 1.06 per cent to 0.65 per cent.

Mr Barnett, who has run the trust since 1999, has a strong long-term track record. According to research company FE Trustnet, he has delivered a cumulative total return of 136.9 per cent over 10 years, compared with 93 per cent for a composite of his peer group.

Mr Barnett aims to find undervalued businesses that can maintain and grow their dividends, and which he can hold for the long term. About half of Perpetual Income and Growth's assets are in FTSE 100 companies, with a quarter in FTSE 250 stocks and the remainder spread across small-caps, international equities and other investment trusts. Financials, healthcare and industrials are the three largest sector exposures. Mr Barnett also thinks there is value in the pharmaceuticals sector where he believes pipeline risk is overstated.

But despite Mr Barnett's strong track record, the trust's cumulative NAV and share price returns have underperformed the FTSE All-Share index and the average return for UK equity income investment trusts over one and three years.

Innes Urquhart, research analyst at Winterflood Securities, says: "Performance relative to the benchmark and peer group has been disappointing over the past couple of years, having been negatively affected by its lack of exposure to the resources sector, as well as stock-specific issues with holdings such as Capita (CPI), BT (BT.A) and Circassia (CIR). However, the trust's longer‐term track record is still good and, given the manager's style and significant active weights, it should be expected that performance will, at times, deviate significantly from the benchmark index."

So if you are willing to be patient, Perpetual Income and Growth Investment Trust and its experienced manager might return to form and its discount might tighten, making it a good contrarian opportunity. Buy. EA.

Perpetual Income & Growth Investment Trust (PLI)

Source: Winterflood Securities as at 17/01/18, *Morningstar

Performance

Source: Winterflood Securities as at 17/01/18

Top 10 holdings as at 30/11/17 (%)

Source: Invesco Perpetual

Sector breakdown as at 30/11/17 (%)

Source: Invesco Perpetual