Annabel Brodie-Smith, Communications Director, Association of Investment Companies
“I need a hero – I’m holding out for a hero ‘till the end of the night”. As a teenager in the mid-80s it’s hard to forget these immortal words being belted out by a fellow Welsh woman, Bonnie Tyler. It turns out that “heroes” is a popular song theme prompting a fierce debate in the office on the best ‘hero’ song. Heroes are also much admired amongst investment trust fans, namely dividend heroes.
There are twenty-one dividend hero investment trusts (See Table) which have increased their dividends every year for twenty years and over. Four of these, City of London, Bankers, Alliance and Caledonia have consecutively increased their dividends for over 50 years. This is due to investment trusts’ unique structural advantage, allowing them to squirrel away up to 15% of the income they receive each year into their revenue reserve to distribute in tougher times.
Investment trusts also have another benefit when it comes to income as they invest in a wider range of investments that can generate a higher income. Their closed-ended structure allows them to invest in illiquid assets like property, infrastructure, renewable energy and illiquid forms of debt. This is demonstrated by the Property Direct UK sector, which has been one of the most popular sectors for advisers since the Brexit referendum caused many property open-ended funds to be suspended. This sector has an average yield of 4.8% and is up 118% over the last ten years.
Finally, investment companies, unlike open-ended funds, have another income advantage – they don’t have to pay dividends just from the income they receive from investments but can pay dividends from capital profits. This flexibility helps meet shareholder demand for income in this low interest rate environment and potentially can lead to investment companies being re-rated to trade on lower discounts. Clearly investment trust boards have an important role to play, ensuring any change in dividend policy is in shareholders’ best interests. So if you too are holding out for a hero, investment companies may be for you.
| Company | Sector | Number of consecutive years dividend increased |
Dividend yield as at 28/02/18 (%) |
| City of London Investment Trust | UK Equity Income | 51 | 4.2 |
| Bankers Investment Trust | Global | 51 | 2.2 |
| Alliance Trust | Global | 51 | 1.9 |
| Caledonia Investments | Global | 50 | 2.0 |
| F&C Global Smaller Companies | Global | 47 | 1.0 |
| Foreign & Colonial Investment Trust | Global | 47 | 1.6 |
| Brunner Investment Trust | Global | 46 | 2.2 |
| JPMorgan Claverhouse Investment Trust | UK Equity Income | 45 | 3.6 |
| Murray Income | UK Equity Income | 44 | 4.3 |
| Witan Investment Trust | Global | 43 | 2.1 |
| Scottish American | Global Equity Income | 38 | 3.0 |
| Merchants Trust | UK Equity Income | 35 | 5.2 |
| Scottish Mortgage Investment Trust | Global | 35 | 0.7 |
| Scottish Investment Trust | Global | 34 | 2.4 |
| Temple Bar | UK Equity Income | 34 | 3.4 |
| Value & Income | UK Equity Income | 30 | 4.3 |
| F&C Capital & Income | UK Equity Income | 24 | 3.4 |
| British & American | UK Equity Income | 22 | 14.7 |
| Schroder Income Growth | UK Equity Income | 22 | 4.1 |
| Northern Investors Company* | Private Equity | 21 | 13.4 |
| Invesco Income Growth | UK Equity Income | 20 | 4.1 |
*Please note Northern Investors Company is winding up
To find out more about dividend information for member investment companies visit: https://www.theaic.co.uk/financial-advisers/findcompare-investment-companies.
