Dunedin Income Growth (DIG) has plans to rocket up the dividend yield league table by introducing an enhanced dividend policy, using reserves to boost its distributions (the trust has distributable reserves totalling £298m). The total dividend for the financial year ended 31 January 2026 will be at least 19.1p per share, 34.5% up on the prior year.
The trust plans to use this as a base for a progressive dividend policy, growing the dividend in absolute terms each year. Dunedin Income Growth is already an AIC next generation dividend hero.
The initial target is to distribute 6% of net assets, which with the shares trading on a 7.7% equates to a dividend yield of about 6.5%. That would propel the trust from seventh of all UK equity income trusts to third, in yield terms.
The trust’s performance track record is not looking great at the moment, ranking towards the bottom of the league tables over one, three, and five years. Crucially, it hasn’t actually generated NAV total returns of 6% over the past year – under the proposal, shareholders could see the capital value of their investment flatline or even fall if this continues.
QuotedData’s James Carthew said: “I’d point out that the two highest yielding shares in the UK equity income sector – CT UK High Income Trust (B shares) and Chelverton UK Dividend Trust – both trade on discounts, which might imply that a higher yield is no guarantee of a better rating. Dunedin Income Growth’s performance track record is decidedly poor currently. Will investors be distracted from that by a higher dividend?”
Almost all of the trusts in the sector are achieving their income naturally. If you are doing that, as you go higher up the dividend yield scale, there is a chance that you are taking bigger risks with lower quality stocks to do it. Dunedin Income Growth should avoid that problem. It could even, if it chose, move into more higher growth but lower yielding stocks. However, the board says that there are no plans to change its “focus on high-quality companies and long-term capital and income growth”.
Value investor Temple Bar (TMPL) is the standout winner in the performance league tables now. It is the only other trust that is enhanced divdiend policy – a top-up dividend introduced to reflect the fashion for share buybacks in preference to higher dividends amongst UK companies.
DIG : Big uplift in dividends from Dunedin Income Growth
