The City of London, Bankers investment trust and Alliance Trust have paid increasing dividends over the past 50 years, according to research by investment trust trade body, the Association of Investment Companies (AIC).
Among its list of ‘dividend heroes’ was a number of other closed-end funds that have increased dividends for 20 years or more.
Income earned on £1,000 investment over 20 years
Source: FE Analytics
Over 20 years the City of London investment trust would have paid £1,069.36 in income on a £1,000 investment, according to data from FE Analytics
Job Curtis, manager of the City of London investment trust, said its long-term record of growing dividends every year for the past half century had stemmed from its investment in good companies and the investment trust structure.
He said: “In the good years for dividends, we add to our revenue reserves which we are then able to use in more difficult periods.
“Indeed, in seven of the 25 years during my period as fund manager, we have dipped into revenue reserves to help grow the dividend.”
Performance of trust vs sector & benchmark in 2016
Source: FE Analytics
He added: “In our view, the dividend yield from UK equities remains attractive compared with the main alternatives and dividend growth has been augmented by the fall in the value of sterling over the last nine months.”
Alex Crooke, manager of the Bankers investment trust, said: “The trust last held the dividend flat in the year 1966, following a bumper year of dividends received in 1965 when companies tried to avoid the introduction of capital gains tax for the first time. The record of growth before then goes back all the way to the Second World War.”
Crooke said: “The key is to invest in companies that themselves focus on cash generation and distributing dividends throughout economic cycles.
“The current outlook for income is more muted than previous years, partly because dividends, after lagging the recovery of corporate earnings post the 2008 crash, have now caught up.
“Many companies in the US and Europe are now paying out a relatively high percentage of their earnings as dividends and therefore fund managers need to carefully focus on those industries where earnings are rising.”
Performance of investment trust versus sector & benchmark over 3yrs
Source: FE Analytics
He added: “Telecommunications looks a place to avoid as both intense competition and regulators are keeping prices low, while potentially investing in 5G and new services could be a drain on cash flow for many years ahead.
“Conversely the technology sector in the US looks well placed, particularly long established companies. There is good underlying earnings growth and also room to pay out a higher percentage of profits to shareholders.
“Overall global growth in dividends is expected to be in the 3-5 per cent range, but for investors in the UK this may be higher if the pound continues to fall against overseas currencies.”
The Bankers investment trust would have returned £878.17 in income on a £1,000 investment while Alliance Trust would have delivered £713.48 to investors.
As well as the three 50-year dividend growers there were a number of other closed-ended funds that have recently announced dividend increases for the 2016 year-end, according to the AIC.
Foreign & Colonial, Brunner, JPMorgan Claverhouse and the Witan Investment Trust have all paid out increasing dividends for more than 40 years.
Meanwhile, the Scottish American, Scottish and Temple Bar investment trusts have all grown their dividends for more than 30 years.
Table of AIC’s ‘dividend heroes’
Annabel Brodie-Smith, communications director at the AIC, said: “In the current low interest rate environment, with inflation creeping up, the ability to ‘smooth’ dividends is a unique advantage of the investment company structure.
“Investment companies can store up to 15 per cent of the income they receive each year and can use these reserves to boost dividends when times get tough in the future.”