Merchants Trust says dividend reserves to help protect distributions

Merchants Trust (MRCH) has reported final results to 31 January 2020. The landscape has changed considerably since the period-end. Over the annual results period, the performance highlights include:

• 18.7% increase in the NAV total return against 10.7% benchmark return;
• 18.6% rise in the share price;
• 4.2% increase in the dividend;
• 38th successive year of dividend growth;
• Cost of debt more than halved over three years; and
• 4,150,000 new shares issued at a premium to NAV.

Covid-19 and the impact on the portfolios income stream

This is an extract from chairman, Colin Clark’s, outlook statement:

“The impact of covid-19 is a very present shadow at the moment and, as we write, markets have produced sharply negative returns in the first weeks of our new financial year. There is clearly going to be a significant impact on the economy, corporate profitability and dividend income in addition to people’s health. We are already seeing numerous company boards taking a cautious approach to payouts and some have decided to postpone or cancel dividend payments. Since some of the companies we own are in this position this will undoubtedly reduce the income stream for the trust in the new financial year. We will continue to monitor this situation closely, however, MRCH started the year in a strong position and the dividend was comfortably covered by last year’s earnings. In addition, the ability of an investment trust to be able to smooth dividend payments by building up reserves following strong performance and draw upon them in more challenging years is a positive feature of our structure.  

As long-term investors, we are confident of our future returns and the investment team are actively reviewing individual company exposures and risks, and making portfolio adjustments, where necessary, to manage the income stream and to take advantage of exacerbated pricing anomalies. Our managers believe that, after the sharp pull back in the market, the UK stock market is offering good value and is one of the cheaper world markets. Against this backdrop they continue to seek out strong, structurally well positioned companies, paying above-average dividend yields, and trading on attractive valuations.”

Portfolio holdings at the FY-end

MRCH: Merchants Trust says dividend reserves to help protect distributions