Increase in the number of investment trusts with a track record of at least 20 years of dividend rises

8th March 2016

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This year may well have endured a rocky start with a number of high profile companies having cut their dividends. But on the flip side a number of investment companies have already upped their payouts in 2016.

According to trade body, the Association of Investment Companies (AIC), in January, the Bankers Investment Trust announced its 49th year of consecutive dividend increases and last week Alliance Trust also announced 49 years of consecutive rises, making them the second and third companies to reach this milestone to date.

Looking at the prospects for dividends this year, Alex Crooke, manager of the Bankers Investment Trust, said: “Overall we are positive on the prospects for dividend growth in the year ahead, though sectors sensitive to falling commodity prices are likely to cut pay-outs to shareholders. Consequently, stock picking is vital in these market conditions so that income investors can avoid those stocks likely to produce poor shareholder returns.

“It remains possible to find companies in all regions that are expected to raise their dividends by around 5-6% but as always, it is essential not to overpay for this income. As a result we have a preference for the telecoms and healthcare sectors where we can find stocks with decent dividend yields, strong free cash flow characteristics and attractive dividend growth potential.”

February had a number of strong dividend increases. Brunner Investment Trust announced its 44th year of increases and Witan Investment Trust achieved 41 years. Final results are also due this month from Foreign & Colonial Investment Trust, who if able to announce another dividend increase, will hit 45 years.

This year may be an exciting year for City of London Investment Trust, as they could become the first dividend hero to reach 50 years of consecutive dividend increases, an impressive achievement.

The fund’s manager Job Curtis said: “The fall in sterling compared with the US dollar in recent months has given a positive translation effect to those dividend payments from UK companies that are paid in US dollars. Special dividends have been announced by a variety of companies including Croda, ITV, Direct Line and Hiscox.

“Lloyds Bank pleased the market with a significant increase in its final dividend and also by announcing a special dividend. In contrast, Barclays surprised the market by guiding to a cut in its 2016 dividend. In the mining sector, which has been adversely affected by the fall in commodity prices, dividend cuts were widespread, as had been generally expected by investors.

“Looking ahead, there remains both stock specific risks and opportunities so there are advantages to obtaining equity income from a diversified investment trust with revenue reserves.”

Annabel Brodie-Smith, communications director, AIC, said: “After a bumpy start to the year, with some well-known companies cutting their dividends, it’s reassuring for investors that some investment companies have an unrivalled record of dividend increases.

“Many investment companies have been able to increase their dividends every year because they have the unique ability to squirrel away some of the income they receive each year for bad times ahead.  This is known as dividend smoothing and is a particularly useful feature to boost dividend payments. So it’s not surprising that some investors may want to consider investment companies for their ISAs or pensions.”

Dividend heroes

Company Sector Number of consecutive years dividend increased
City of London Investment Trust UK Equity Income 49
Bankers Investment Trust Global 49
Alliance Trust Global 49
Caledonia Investments Global 48
F&C Global Smaller Companies Global 45
Foreign & Colonial Investment Trust Global 44
Brunner Investment Trust Global 44
JPMorgan Claverhouse Investment Trust UK Equity Income 43
Murray Income UK Equity Income 42
Witan Investment Trust Global 41
Scottish American Global Equity Income 36
Merchants Trust UK Equity Income 33
Scottish Investment Trust Global 32
Scottish Mortgage Investment Trust Global 32
Temple Bar UK Equity Income 31
Value & Income UK Equity Income 28
F&C Capital & Income UK Equity Income 22
British & American UK Equity Income 20
Schroder Income Growth UK Equity Income 20

Source: AIC using Morningstar

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