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Merchants ekes out 40th year of dividend growth after good year

Merchants Trust has published results covering the 12 months ended 31 January 2022. The NAV total return for the period was 35.7%, comfortably ahead of the benchmark All-Share Index return of 18.9%.

As economies recovered from the effects of COVID, revenue earnings per share for the year were up 38.4% over the corresponding period last year to 25.6p from 18.5p. The board has resolved to up the full-year dividend to 27.3p from 27.2p, dipping into reserves to do so, but enabling it to claim 40 years of consecutive dividend increases. Following this, Merchants still has 16p per share of distributable reserves if needed.

The shares have often been trading at a premium and this has allowed the trust to issue shares to the value of £35.6m (5.6% of share capital) over the financial year, and a further £11.9m since 31 January.

The chairman notes that “Opportunities abound when markets are volatile. Over the course of the past year for example, when we have emerged from the pandemic and economic recovery looked possible, the market has seemed to hang on the coattails of earnings momentum – sending prices rocketing when earnings surged forward or retreating when earnings didn’t match expectations. This environment has helped our manager to be somewhat contrarian – buying companies which they believe have good long-term prospects but where the market has overreacted to an intermediate drop in earnings. Conversely, our manager has sold companies where market exuberance has driven the stock price past the team’s assessment of fundamental value.”

He also sees renewed interest in UK companies from overseas investors and suggests that part of the attraction may be higher than average corporate governance standards.

There is no report from the manager in the announcement. This should feature in the annual report when that is published.

MRCH : Merchants ekes out 40th year of dividend growth after good year

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