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North American Income ups dividend despite lower option income

North American Income Trust reports an NAV total return per share of 25.7% for the 12 months ended 31 January 2022. It just failed to match the 26.3% total return for the Russell 1000 Value Index. The chairman says that this was attributable mainly to overall positioning in the technology sector and stock selection in consumer staples, and hampered by stock selection in the energy, real estate and financial sectors.

The revenue return fell by 12.8% to 10.28p from 11.79p. Dividend income fell by 2.7% but option income fell by over 27%, partly as a result of the exceptional level of option income received in 2020. Option premiums received in 2021 are closer to the levels received in 2019. Total dividends for the year to 31 January 2022 are 10.3p, a 3.0% increase on the previous year and almost entirely covered by revenue.

The share price rose by 25.6% to 283p and ended the period at an 11.2% discount, compared with a 10.9% discount at the end of the 2021 financial year. The board and the manager are keen to see this narrow and are both promoting the company’s benefits to a wider audience and providing liquidity to the market through the use of share buybacksDuring the year, 2,353,212 shares were bought back for £6.35m and cancelled at a weighted average discount of 9.6%. Since 31 January 2022, the company has bought back a further 440,036 shares, at a weighted average discount of 11.7%.

Extract from the manager’s report

The Company returned 25.7% on a net asset value total return basis in sterling terms for year ended 31 January 2022, modestly underperforming the 26.3% total return of its reference index, the Russell 1000 Value Index. The revenue account remained in a healthy position, building upon the record established in prior years. The decline in the revenue account was largely attributable to the exceptional level of option income received in 2020. Furthermore, while many holdings raised their dividend payments in 2021, they did it on a delayed basis instead of annually. The result was flat dividend payments for several holdings for five, six or seven quarters. Fortunately, most holdings that deferred raising their dividend payments did so by the end of 2021 such that dividend income growth should improve in 2022.

The Company’s performance relative to the reference index for the period benefited from overall positioning in the technology sector and stock selection in consumer staples. The main individual stock contributors to performance included holdings in alternative asset manager Blackstone and pharmaceutical firm Abbvie.

Blackstone saw healthy revenue and earnings growth with notable strength in its Private Equity and Real Estate segments. Abbvie saw healthy year-over-year revenue and EPS growth as they benefited from healthy revenue growth in its Global Botox Therapeutic business.

Investment performance was hampered by stock selection in the energy, real estate and financials sectors. The largest individual stock detractors from performance were Omega Healthcare Investors, a REIT with exposure to nursing homes and assisted living facilities, and medical device maker Medtronic. 

The share price of Omega Healthcare Investors fell as demand for skilled nursing facilities waned, given the decline in elective procedures that help drive demand in this industry. Shares of Medtronic declined late in the period as the surge in COVID-19 variants dampened the outlook for performed medical procedures in addition to lost sales related to the discontinuation of the company’s older diabetes pump model. The Company’s lack of a holding in Exxon Mobil weighed on performance as the stock price rose sharply as crude oil prices rose.

NAIT : North American Income ups dividend despite lower option income

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