One of the key advantages of investment trusts is their superior record of increasing their yield year after year.

According to figures from the AIC, 46 per cent of UK Growth & Income trusts have raised their payout every year for 20 years or more, while the same is true of 45 per cent of Global Growth trusts.

Trusts can set aside cash to smooth their yield, meaning that if the stocks in the portfolio produce a smaller dividend one year the shortfall can be made up from reserves.

This also removes the motivation to sell out of stocks when their dividend falters, allowing a longer-term outlook to develop.

The following all appear on the AIC’s list of trusts with the longest record of increasing payouts, with the exception of relative newcomer Perpetual Income and Growth.


City of London Investment Trust

This five crown-rated trust, highly regarded by Kieran Drake, analyst at Winterflood, has been increasing its yield for nearly half a century.

It has the joint longest record of continually growing its dividend of any investment trust in the UK – 45 years.

The fund traces its history back to 1901 and has been managed by Job Curtis since 1991.

It currently yields 4.4 per cent, according to data from FE Analytics.

Our data also shows that over the past 20 years it has substantially beaten the average trust in its IT UK Growth & Income sector.

Performance of trust vs sector over 20-yrs



Source: FE Analytics

Although it has suffered periods of relative underperformance, data from FE Analytics shows that these have tended to be during periods when the market has gone up.

In 2003 the fund made just 13.61 per cent while the sector went up 26.29 per cent, while in 2004 the trust made 15.05 per cent while the sector rose 26.5 per cent.

However, it may appeal to investors looking for downside protection as it lost less than its sector in the falling markets of 2002, 2007 and 2008.

The trust is run by Henderson and has an ongoing charges figure of 0.47 per cent.


Bankers Investment Trust

In the Global Growth sector, Drake likes the Bankers Investment Trust, also run by Henderson, and also with 45 years of continual dividend growth behind it.

It has been managed by Alex Crooke since 2003 and like the City of London Investment Trust it has outperformed its sector when markets have fallen.

Drake said: "We rate Alex Crooke and the team of fund managers at Henderson highly. The fund has a solid performance record and the dividend has grown well ahead of inflation. With significant revenue reserves, we would expect the record of real dividend growth to be continued."

The ongoing charges are just 0.44 per cent.


Perpetual Income and Growth

"Although it has a shorter record of growing dividends, we would also highlight Perpetual Income & Growth, which has seen strong growth in its dividend over the last 10 years or so," Drake said.*

"The fund benefits from having a covered dividend and substantial revenue reserves. In addition the fund has a strong long-term total return record and we rate Mark Barnett highly."

"We believe that the fund’s investment approach has the potential to provide attractive total returns over the long-term."

Barnett has run this trust, which is currently yielding 3.72 per cent, since 1999, but its record dates back to 1996.

Data from FE Analytics shows that it has beaten its sector average and its FTSE All Share benchmark substantially over the past 10 years, making 241.25 per cent.

Performance of trust vs sector and benchmark over 10-yrs

 

Source: FE Analytics

The ongoing charges on this trust are a little higher, at 1 per cent per annum.


Alliance Trust

This is the third trust that has managed to continually increase its dividend for 45 years, although its performance has slipped in recent years.

Over 10 years it has made just 100.29 per cent, putting it 26th out of 29 trusts in IT Global Growth.

Over three and five years its returns have been around average for its sector, however.

Lead manager Katherine Garret-Cox has come in for much criticism for the recent performance of the portfolio, and defeated a bid to oust her earlier this year.

Perhaps partly due to this controversy, the trust is available at a sizeable discount of 14.82 per cent, and the ongoing charge figure is just 0.65 per cent.


Caledonia Investments

This trust is currently yielding 2.79 per cent and has raised its dividend for 44 years in a row.

Data from FE Analytics shows that it has outperformed its sector and benchmark over 10 years, albeit with a substantially higher volatility.

The annualised volatility on the FTSE All Share over that decade was 14.44 per cent, while that of the trust was 19.48 per cent.

The portfolio suffered particularly badly in 2011, losing 26.49 per cent while the FTSE All Share was down just 3.46 per cent.

Performance of trust vs sector and benchmark over 10-yrs



Source: FE Analytics

It is available on a large discount of 23.2 per cent and has ongoing charges of 0.96 per cent.

*Winterflood Securities is corporate broker to Perpetual Income & Growth