Some 17 trusts have increased their pay out to investors for more than 20 years in a row, earning them the ‘dividend hero’ status, according to the Association of Investment Companies (AIC).
However, there were seven that have managed this feat for more than half a century, with the City of London Investment Trust, Bankers and Alliance Trust all marking 55 years.
Annabel Brodie-Smith, communications director of the AIC, said that with markets in freefall and inflation rising, investors are rightly concerned about their income, making these trusts invaluable.
Source: The Association of Investment Companies/Morningstar
“These dividend heroes have consistently raised their dividend every year during the inflationary environment of the 1970s and through the market crashes of Black Monday, the tech bust, the financial crisis and the pandemic,” she said.
All are popular, but below, Trustnet asks fund pickers which of the seven trusts they would buy if they required an income.
Juliet Schooling Latter, research director at Chelsea Financial, said City of London was her top choice, as the current yield of 5% is significantly higher than others on the list.
“It is, in fact, a level most income investors would be very happy with today and the annualised dividend growth rate is more than enough for most inflationary environments – yes it's below today but should be ahead of the medium-long term average,” she said.
One benefit to the investment trust structure is that the board can keep back excess income in strong years to supplement payments during leaner spells, such as in 2020 during the pandemic.
This is something that the board of City of London has used to good effect both in 2020 and 2021, which is a “reassurance” to investors.
“The trust itself is also in a very reliable pair of hands,” Schooling Latter added. “Job Curtis has managed it for more than 30 years now and performance has been very consistent over his tenure – through good times and bad. It will never be shooting the lights, but I don't think that is what this trust is for – it's a core holding to give your portfolio stability.”
Total return of trust vs sector and benchmark over 10yrs
Source: FE Analytics
Independent financial expert Adrian Lowcock agreed, noting that Curtis’ “conservative approach” marries well with those that require a stable income.
“The team look for companies able to pay and grow their dividends over time whilst paying close attention to valuations. As a result, the portfolio typically has a bias to large-cap companies with around 60% exposed to this part of the market,” he said.
Rob Morgan, chief analyst at Charles Stanley, said that the trust is not particularly differentiated in terms of active share from the market, but it is invested in around 100 stocks, making it a well-diversified option overall, and the manager does have the option to buy overseas companies.
“It is a large and liquid trust that has a generous yield assisted by a bit of gearing and low charges that are competitive against even passives,” he said, making it a “core” option for equity income investors.
Emma Bird, research analyst at Winterflood Securities broke the trend among our experts by backing the Bankers Investment Trust.
“It has much to commend it and we regard it as a core, long-term global equities savings vehicle. The considerable diversification of the portfolio should limit volatility and helped to mitigate the impact of revenue declines during the height of the pandemic in 2020,” she said.
Manager Alex Crooke benefits from a strong stable of underlying portfolio managers and has a long-term track record, having run the fund since 2003.
“The fund’s 55-year dividend record remains one of Bankers’ key attractions, in our opinion. Given its significant revenue reserves, coupled with the ability to pay out of capital reserves in extraordinary circumstances, we expect that this record will be maintained,” said Bird.