City of London Investment Trust (CTY), Bankers Investment Trust (BNKR) and Alliance Trust (ATST) have raised their dividends for 53 years in a row, while a further 18 also qualify as Association of Investment Companies (AIC) ‘dividend heroes' because they have raised their dividends for 20 or more years in a row. These include Caledonia Investments (CLDN), which has raised its dividends for 52 years in a row. Seven trusts have increased their dividends for 40 or more years in a row and five have done this for more than 30 consecutive years.
With interest rates falling the reliability of income streams is even more important. And in difficult market conditions investors can continue to receive dividends even if share prices of investment trusts they hold have fallen.
Part of the reason why investment trusts can keep increasing their dividends is because they can hold back up to 15 per cent of the income they receive from their holdings each year in a revenue reserve. This means that in years when underlying investments do not pay out enough income for dividend increases they can draw on some of the money in their revenue reserves.
However, due to the current extreme situation, the extent to which investment trusts will be able to continue to increase dividends in the next year or further down the line is uncertain. This partly depends on the size of trusts’ revenue reserves and dividend cover – how many years the current revenue reserve could pay the amount of dividend the trust paid out in its last financial year. You can check this information at www.theaic.co.uk.
But what income trusts get from their underlying holdings is a key factor. “I think it is quite likely that a lot of companies will use [this situation] as an excuse [to cut dividends] even if they are not desperate to conserve cash," said David Liddell, chief executive of online investment service IpsoFacto Investor. “So I would be quite cautious of dividends. While investment trust revenue reserves are nice, if boards of investment trusts see the underlying income falling rapidly they are not going to dip into reserves hugely to hold up dividends. Global equity income trusts have oil company exposure, while [some] UK equity income trusts are very dependent on sectors at risk of dividend cuts, such as oil, banking and to some extent tobacco.”
AIC dividend heroes as at 16 March 2020
|Trust||Sector||Number of consecutive years dividend increased|
|City of London Investment Trust||UK Equity Income||53|
|Bankers Investment Trust||Global||53|
|Caledonia Investments||Flexible Investment||52|
|BMO Global Smaller Companies||Global Smaller Companies||49|
|F&C Investment Trust||Global||49|
|Brunner Investment Trust||Global||48|
|JPMorgan Claverhouse Investment Trust||UK Equity Income||46|
|Murray Income||UK Equity Income||46|
|Witan Investment Trust||Global||45|
|Scottish American||Global Equity Income||40|
|Merchants Trust||UK Equity Income||37|
|Scottish Mortgage Investment Trust||Global||37|
|Scottish Investment Trust||Global||36|
|Temple Bar Investment Trust||UK Equity Income||36|
|Value & Income||UK Equity Income||32|
|BMO Capital & Income||UK Equity Income||26|
|British & American||UK Equity Income||24|
|Schroder Income Growth||UK Equity Income||24|
|Invesco Income Growth||UK Equity Income||22|
|Perpetual Income & Growth||UK Equity Income||20|