Payouts from London Stock Exchange Group and Japan’s video gaming giant are set to grow and alleviate the dividend pressure on Lindsell Train investment trust, says co-manager Michael Lindsell.
Lindsell Train (LTI), the highest-yielding global equity investment trust, has reassured shareholders that pressure on its dividend from the decline in Nick Train and Michael Lindsell’s fund management business should in future be alleviated by its two other biggest positions in London Stock Exchange (LSEG) and Nintendo.
Co-manager Lindsell said LSEG and Nintendo had provided just 3% and 2.6% of the £161m trust’s revenues in the last financial year. He admitted that looked “undersized” compared to the 11.4% and 13.8% positions they held in the concentrated portfolio at 31 July.
By contrast, Lindsell Train Limited (LTL), the managers’ unlisted business that is the trust’s largest holding at 23.5% of assets, generated an “overwhelming” 75.9% of revenues in the year to 31 March.
LTL’s revenue-generating prospects have been in the spotlight since June when the trust slashed its annual dividend by 18.4% from £51.50 to £42 per share. This reflected the fall in full-year revenues from LTL which had suffered further outflows from its underperforming funds.
LTL remains under pressure with the trust today disclosing that its net asset value (NAV) fell 4.2% in July, largely due to the decline in its three biggest investments: LTL, Nintendo and LSE.
Their falls more than offset the gains of its three biggest risers, the Lindsell Train North American Equity Fund, which accounts for 11.2% of assets, alongside smaller positions in Thermo Fisher, the US life sciences supplier, and Laurent-Perrier, the French champagne producer.
The 5%-yielding shares slipped 2%, or £16, to £790 in response at a discount of almost 17% to NAV of £946.38 per share.
Nintendo’s Switch
Lindsell acknowledged the ongoing downward pressure on LT, whose weighting in the trust has fallen from 26.1% in March. However, he expressed confidence that dividends from video game company Nintendo and LSEG could “grow materially” over several years and “redress the imbalance”.
The Japan fund manager said Nintendo paid a formulaic dividend of the higher of 30% of net profits and 50% of operating profits. Both these measures were depressed last year by the costs of launching its new Switch 2 console with “current consensus earnings forecast suggest dividends could rise back up to 160 yen per share this year, which would represent a more than 30% increase from last year’s.”
Turning to LSEG, whose half-year results on 31 July disappointed some investors with declining subscription growth in its core data and analytics division, Lindsell said the 13% increase in operating profits would support more share buybacks and a 15% rise in the interim dividend.
“Prodigious” LSEG and Microsoft
Lindsell said the data and analytics business was important as it leveraged artificial intelligence (AI) tools and the deepening relationship with Microsoft. “We remain assured that the benefits of this strategic partnership are prodigious, and given LSEG’s legacy platform ‘Eikon’ has been retired and migrated to Workspace, we expect to see its ASV [annual subscription value] growth re-accelerate once again as all clients will now be on the new platform”.
LSEG and Microsoft had not rushed out new products and services knowing how important it was to achieve high AI accuracy levels first, Lindsell said.
Shares in LTI are close to where they were in January but remain 45% below their £1,740 peak four years ago when Train’s long-running outperformance in UK equities came to an end.
Shareholders will vote on 11 September on a proposal for a 100-for-1 share split to improve liquidity and accessibility of the stock.
