The Association of Investment Companies (AIC) has published its annual ‘dividend heroes’ survey – a list of the investment trusts that have increased their dividends for 20 or more consecutive years. This year, there are 20 dividend heroes. They include City of London Investment Trust (CTY), Bankers Investment Trust (BNKR) and Alliance Trust (ATST) which have increased their dividends for 52 consecutive years, and Caledonia Investments (CLDN) which has raised its dividends for 51 years in a row.
Investment trusts can keep up to 15 per cent of the revenue they receive and place it in a reserve, rather than having to pay it all out to shareholders. This means that in years when their underlying investments don’t pay a sufficiently high level of revenue, they can dip into their reserves to help them maintain or increase their dividends.
It makes sense to invest in an income fund that pays sustainable and increasing dividends that outpace inflation, rather than the one with the highest yield.