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Law Debenture Corporation can look to growth to create an income

Law Debenture Corporation can invest in non-yielding assets because it also gets revenues from a professional services business
July 16, 2020

This year’s dividends cuts and suspensions have not been helpful to managers of UK equity income funds. But they have been less of a concern to James Henderson, co-manager of Law Debenture Corporation (LWDB). This is in part because alongside its investment portfolio, the trust has a professional services business that accounted for around 15 per cent of its net asset value (NAV) at the end of last year. Over the 10 years to 31 December 2019, 35 per cent of the trust's dividends have been funded by the professional services business.

Mr Henderson says it is helpful that the trust gets earnings from the professional services business. As a result, he has not sold holdings such as Royal Dutch Shell (RDSB) because they have reduced or suspended their dividends.  

“Often by the time a company cuts its dividend quite a lot of that has [already] been discounted, so it isn’t necessarily met with selling as it’s already reflected in the rating,” he explains. “[This means that] I can hold things with zero yields. They’re often the ones that are most interesting from a valuation perspective because there’s a lot of bad news in the price. And I believe that some of those will come back onto the dividend list next year or in the second half of next year. Some of them won’t come back onto the dividend list until 2022, but because we’ve got this income already it matters less [for us] than income funds [without that].”

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