Diverse Income approach pays off – the impact of COVID-19 hit many large dividend paying companies last year. By diversifying its portfolio across both large and small companies, Diverse Income was able to emerge from this period with strong results.
For the year ended 31 May 2021, Diverse Income Trust reports an NAV total return to shareholders of 38.4%, which compares to 23.1% for the UK market and a return to shareholders of 47.6%. The company paid dividends totalling 3.75p, up 1.4% on the previous year. The dividend was almost fully covered by earnings of 3.73p per share. The share price total return was boosted by a move from a 5.4% discount at the start of the period to a premium of 0.6% at the end. 3.4m of shares were issued and 347,580 bought back.
Extract from the managers’ report
“Whilst economic conditions were challenging for many companies during the global pandemic, for some the relatively abrupt changes in customer behaviour enhanced their prospects. CMC Markets, the Contract for Differences trading business for example, enjoyed very strong trading conditions over the year to May 2021, and greatly increased its profits and dividend payments. CMC Markets was the largest contributor over the year under review, adding 3.5% to the return of the Company.
The second best contributor was K3 Capital, a multi-disciplinary group of professional services businesses advising small to medium enterprises on matters such as Mergers and Acquisitions. Although volumes were weak at this time last year, K3 Capital scaled up its operations via two complementary acquisitions at a time when corporate valuations were low. Subsequently, as SME transactions have recovered, the combined business has gone on to generate much greater cash surpluses than previously anticipated. K3 Capital enhanced the return of the Company by 1.9%.
The holdings in 888 Holdings, Kenmare Resources and Strix Group contributed over 1.0% each to the Company’s returns in the period under review.
The portfolio holding that most detracted from the Company’s return during the year was Manolete. Its share price had performed strongly in previous years, as it helped insolvent businesses fund past legal cases. This business has found it more difficult over the pandemic as there have been fewer court sittings. Much of the holding was sold early in the period, and it was sold entirely by the year end. Another disappointing holding was Centamin, a gold miner which was obliged to mine some lesser grade ore due to safety concerns on its planned operations. In our view, Centamin will mine the higher grade ore in future years so the holding has been increased during a time when the share price was weak, in anticipation of future dividend growth. Together these holdings detracted 1.7% from returns in the year.”
DIVI : Diverse Income approach pays off