Income investors have watched as dividends have been cut or postponed across the UK market but Fidelity Personal Investing’s Daniel Lane believes some investment trusts could continue to pay out robust income streams. 
The list of companies that have pulled or lowered their dividends is a lengthy one but includes the likes of Royal Dutch Shell, BT and Imperial Brands.
Lane said: “Recent coronavirus-induced decisions to cut dividends among UK and international firms might well be necessary for corporate stability but for those counting on those payments it poses a headache.
“This is why some investors turn to investment trusts for income and, in particular, their ability to bolster cash reserves when the going is good, in order to maintain pay-outs in tougher times.”
Below, Lane highlights three investment trusts that are known for consistently growing their income payouts.
Witan
Lane’s first pick is the £2bn Witan Investment Trust, which is overseen by chief executive Andrew Bell and has a multi-manager approach to global equities. When it comes to income, the trust has grown its dividend for 45 consecutive years.
“The trust aims to select exceptional third-party managers who are expected to outperform their assigned benchmarks,” Lane explained.
“Bell prefers managers who invest in concentrated, high-conviction portfolios with a solid bottom-up investment process at heart, so that the fund is populated with their best ideas and not overdiversified.”
Performance of trust vs sector and indices over 10yrs
Source: FE Analytics
External managers currently running parts of Witan’s portfolio include Lindsell Train, Crux, Veritas, Lansdowne Partners and Heronbridge. The trust offers access to some managers not available to retail investors and has exposure to both the growth and value investing styles.
The trust recently highlighted that it has £71m in cash reverse, which covers the annual dividend by more than 1.5 times and could be used to make up any shortcomings amid the coronavirus crisis.
“Despite the impact that Covid-19 will undoubtedly have on Witan’s income this year the board reminded shareholders that the revenue reserves will, if necessary, be used to extend the company’s 45-year record of dividend increases,” it said in a recent investor update.
Witan Investment Trust has ongoing charges of 0.91 per cent (which includes its performance fee), is trading on a 7 per cent discount to net asset value and yields 3 per cent. It is 18 per cent geared, according to the Association of Investment Companies.
JPMorgan Claverhouse
Next up is Will Meadon’s £370m JPMorgan Claverhouse trust, which aims to grow both capital and income through a portfolio of high-quality UK equities. Meadon pays close attention to the security of the trust’s dividend, which has a 46-year record of consistent growth.
“The most important aspect of Meadon’s process in selecting companies for the trust is identifying high quality businesses with strong balance sheets and good cash flow and avoiding those with significant levels of debt,” Fidelity’s Lane explained.
“The manager then concentrates on paying the right price and looks to add to the trust’s record of gradually increasing its income.”
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
The trust’s largest positions are in GlaxoSmithKline, Royal Dutch Shell, AstraZeneca, British American Tobacco and the JPMorgan Smaller Companies investment trust. It is overweight the technology and utilities sectors, while being underweight areas like industrials, basic materials and oil & gas.
Meadon told Fidelity: “What income investors want is a regular dividend that will perhaps be bigger next year. If dividends are coming under pressure we’re in a wonderful position to be able to dip into our revenue reserves.
“The trust has been lucky to have managers who have had the foresight to tuck away money for the leaner years, so we can smooth the dividend payment if we need to.”
JPMorgan Claverhouse has ongoing charges of 0.72 per cent, is trading on a 0.8 per cent discount, yields 5.1 per cent and is 12 per cent geared.
F&C Investment Trust
The final portfolio highlighted by Lane is the £4.2bn F&C Investment Trust, which is managed by Paul Niven. Launched in 1868 as Foreign & Colonial Government Trust, it was the first collective investment scheme in the world and has over that time shifted its focus from government bonds to global equities.
“While companies in the trust have come and gone over the years (top holdings currently include Amazon, Alphabet and Alibaba), the major attraction for investors has been the consistency of the income provided,” Lane said.
“The trust has paid a dividend to shareholders in every year of its history and has increased dividends for 49 consecutive years.”
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
The trust is often used as a core holding in portfolios, owing to its objective of providing growth in both capital and income over the long term.
Its portfolio is also well diversified, with exposure to listed equities and unlisted private equity across different geographies, sectors and investment styles.
F&C Investment Trust has ongoing charges of 0.54 per cent, is trading on a 5 per cent discount, yields 1.7 per cent and is 10 per cent geared.