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City of London increased its dividend for 52nd consecutive year

CTY : City of London increased its dividend for the 52nd consecutive year

City of London increased its dividend for 52nd consecutive year – City of London Investment Trust (CTY) has published its annual report for the year ended 30 June 2018.

The NAV delivered a total return of 6.3% over the twelve month period. The dividend was increased for the 52nd consecutive year, by 6.0%, which is ahead of inflation.

In comparison, the FTSE All-Share Index rose by 9.0%.  Also, the company reported that the AIC UK Equity Income sector of funds with similar investment objectives rose by 6.2%.

Performance

 Whilst the NAV underperformed the reference benchmark, the company saw it’s revenue  earnings per share rise by 5.1%. This is because of the portfolio’s dividend growth. Special revenue dividends, which made up 3.7% of total income from investments, were £2.6 million. 

  • Despite having large holdings in Royal Dutch Shell and BP, being underweight in the oil & gas sector relative to the market average was the most costly sector detractor over the 12 months.
  • Other negative factors were being underweight mining, overweight utilities and the fall in the share price of Provident Financial which was subsequently sold.
  • The biggest stock contributor was our stake in travel group TUI.
  • The company’s three housebuilding holdings had another good year and were again among the most significant contributors.
  • Overall, stock selection detracted 2.9% from performance.
  • Gearing started the year at 5.5% and was increased to 7.7% by the end of the period. It contributed +0.5% to performance.

The chairman of the company highlighted the management fee that it pays to Janus Henderson, which stands at 0.365% per annum of net assets up to £1 billion, reducing to 0.35% on the balance of net assets above that level. Although this is competitive against other actively managed equity funds, the board does monitor this closely as costs across the industry remain under pressure. The company’s ongoing charge for the year declined to 0.41%, which is the lowest in the AIC UK Equity Income sector.

Outlook from the chairman, Philip Remnant CBE

“Global economic growth remains robust. That is a supportive backdrop for equity market performance. However, if the trade war provoked by the US administration continues to escalate, global GDP cannot but be adversely impacted and the UK will not be immune.

The outcome of the UK’s negotiations to exit the European Union is still uncertain. In conjunction with our managers, we have considered the direct practical consequences of Brexit on the operations of City of London and do not consider them to be material.

In the event of a disorderly exit, there would likely be more pressure on sterling, as there was in the immediate aftermath of the referendum in 2016. With the portfolio being predominantly invested in international companies, there is a positive effect of sterling weakness on translating overseas profits back into British pounds.

If the exit negotiations are concluded successfully and the UK economy continues to grow, it is likely that the Bank of England will gradually increase the bank rate. In the US and Europe, there are also likely to be further moves away from the stimulative monetary conditions that have prevailed since the global financial crisis. Increases in interest rates and reductions in quantitative easing will pose a challenge for all asset classes.

Reflecting some of these economic and political uncertainties, the valuation of UK equities is reasonable by historical standards and attractive relative to the main investment alternatives. The dividend yield of UK equities remains significantly above bank deposit rates and UK gilt yields, and yet dividends are growing well ahead of inflation. In this context, I believe that City of London’s portfolio of high quality companies with strongly cash generative businesses, capable of growing their dividends and standing on attractive yields, should continue to serve shareholders well.”

CTY : City of London increased its dividend for the 52nd consecutive year

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