TwentyFour Select Monthly Income (SMIF) is considering upping some of its monthly dividends after another strong year saw the 8%-yielder once again surpass its 6p per share payout target.
The £288m debt fund, which mostly invests in floating rate assets, has paid shareholders 0.5p a month for most of its eleven-year life, topping up the final dividend in October to use up excess income.
This year was no exception with the investment company, a sibling to the £923m TwentyFour Income Fund (TFIF), declaring a 1.3p final dividend to take the total for the year to 30 September to 7.3p per share.
This contributed to a 12.2% total underlying investment return for the financial year, down from the exceptional 22.5% gain in the previous 12 months but leaving its income investors with a total return of 51.5% over five years.
Last month the board paid another 0.5p dividend but in the results today chair Ashley Paxton said given the outlook and current expectations of yields, it is possible that the new financial year to 30 September 2026 could also produce excess income over the 6p dividend target. “As with this reporting period, the board and portfolio manager will consider whether the company may temporarily spread the excess income more evenly through the year.”
In contrast to wide discounts in much of the investment company sector, shares in debt funds have traded at small premiums above net asset value (NAV) in the past year. SMIF was no exception with strong investor demand pushing its shares to an average 2% premium, enabling the company to issue 54.3m shares, taking the total to nearly 317m.
In comments published after the US Federal Reserve cut interest rates by a quarter of percentage point for a third time this year to 3.5%-3.7% but forecast just one more reduction next year, fund manager George Curtis said higher for longer interest rates and robust earnings from European banks had encouraged him to maintain the an overweight exposure to high-yielding corporate debt or collateralised loan obligations (CLO) and subordinated finance bonds.
After two strong years he sought to moderate expectations saying returns in the short term would come primarily from income, rather than capital growth, driven by his favoured sectors in financials and asset-backed securities which were supported by yields “substantially above historical averages”.
Curtis added: “However, given elevated macroeconomic risks we are not complacent, and continue to build a portfolio of high conviction credit that we can hold through the cycle whilst maintaining the highest average credit rating the fund has ever had.”
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James Carthew, head of investment company research at QuotedData, said: “This was another good set of results from TwentyFour Select Monthly Income. Most encouraging, perhaps, is that there does not appear to have been any deterioration in the portfolio’s credit rating or in defaults.”
