Over the year to 31 May 2016, M&G High Income’s Package Units delivered a negative total return (capital and income reinvested) of 3.8% over the 12 months to 31 May 2016. This was ahead of the FTSE 350 Higher Yield and the FTSE All-Share indices, which registered negative returns of 8.5% and 6.3% respectively.
The Company’s revenue earnings for the 12 months to 31 May 2016 were 6.44p per Package Unit, the same as last year. They say this was a notable achievement considering around 17% of the portfolio was moved into low coupon, short-dated government bonds in anticipation of the company’s wind-up on 17 March 2017. During the 12 months to 31 May 2016, the Company declared total dividends of 7.45p per Income share, comprising two interim dividends amounting to 3.20p in the first half, a third interim of 1.70p and a final of 2.55p. This represents an increase of 12.9% compared with the total of 6.6p per Income share for the previous year. The increase is well above the latest annual rate of inflation (1.6% in June) as measured by the Retail Prices Index (RPI).
This is the company’s final full year and, as shareholders were informed in the Interim Report and Accounts, the uplift in the 2016 final interim payout utilised most of the Company’s reserves. The Manager has sought to minimise the impact on income of the liquidity-raising programme, and its success is reflected in the maintenance of the company’s revenue earnings this year at almost the same level, despite enduring some dividend disappointments. This does mean that the first two quarterly interim dividend payments in the company’s 2016 /2017 financial year
will not exceed revenue earnings. The intention is that the second interim dividend will cover a four-month period to the end of December 2016, which would be payable at the normal second-quarter pay date on 24 February 2017. We would expect to declare a third and final interim dividend in early March 2017. However, taking account of the liquidation programme, known reductions in corporate dividends and the shorter final year for the company, the total 2017 dividend is likely to be substantially lower than the 2016 dividend because the revenue reserves will be exhausted.
The Board is mindful of the fact that the company is approaching the end of its planned life and is due to be wound up on 17 March 2017 and for cash to be returned to shareholders. The Board believes that it would be beneficial to shareholders as a whole, for the Manager to have some flexibility around the permitted exposure to convertible and fixed interest securities, so as to help position the portfolio ahead of the winding-up in March 2017. It is therefore agreed that the Manager may invest up to 40% of the portfolio is such assets, representing a non-material increase to the permitted limit of 30% in the current investment policy. They expect to continue reducing the equity content gradually over the next few months following the strong rally in the stock market after the Referendum. They also retain the option of protecting the capital value of the portfolio through the use of derivatives at the appropriate time.
MGHP MGHU / MGHI / MGHC : M&G High Income preparing for March 2017 wind up