Update: Annual results from Law Debenture (LWDB) underline why the £1.5bn UK equity income trust won QuotedData’s long-term income award last year.
The company today declared a final dividend of 10.375p per share to take the 2025 total to 35.5p, an above inflation rise of 6%, covered by revenues per share of 37.26p up more than 11% on 2024.
This marks the 47th successive year the “dividend hero” has increased its payout with chief executive Denis Jackson highlighting how the 3%-yielder has more than doubled its distribution since 2016 when it paid 16.7p per share.
That strong dividend growth reflects the unique strength of Law Debenture which, alongside a largely UK investment portfolio run by Janus Henderson managers James Henderson and Laura Foll, owns a group of specialist financial services businesses.
This Independent Professional Services (IPS) division represents 16% of net assets but provides around a third of the trust’s dividend income. Its contribution frees the fund managers to buy non-dividend paying growth stocks which, the annual results show, can be a huge advantage, allowing the value investors to buy stocks when they are out of favour.
For example, Foll and Henderson were able to buy Rolls-Royce (RR) before chief executive Tufan Erginbilgic joined in January 2023 and turned round the ailing aerospace giant. In the past three years, its shares have soared 1,150% contributing 9.5% to Law Debenture’s investment return.
Other UK equity income funds missed out, unable to hold a stock that axed its dividend in the 2020 pandemic and didn’t resume payments until last year.
Other low or no-dividend payers that feature in the top 10 contributors include M&S, up 174% over three years; infrastructure contractor Kier, up 304%; and defence group Babcock, up 350%.
However, dividend stocks are a big feature of the 150-stock portfolio which provided £40.3m of income last year, up 16.1% from £34.7m in 2024.
Last year was a good one for the managers’ investments with their use of 12% gearing, or borrowing, enabling them to outperform a UK market rally led by banks and defence stocks. Including a 7.3% rise in IPS to £208.7m, Law Debenture generated a 28.4% underlying return on net assets, beating the FTSE All-Share’s 24%.
Shareholders got slightly less than the index at 22.2% as the shares slipped from a small premium to net asset value (NAV) to stand on a small discount to NAV at year-end. However, over 10 years to 10 March the company remains the best performing UK equity income trust with a total shareholder return of 252.7%. Over five years it is pushed into second place by Temple Bar (TMPL) which has made 106.5%.
Last month Foll and Henderson jumped on data analytics group RELX and London Stock Exchange Group when their shares slumped on fears of margin erosion by low-cost chatbots and artificial intelligence (AI) tools. RELX is now a 1.5% position and LSEG just under 1% for Law Debenture.
Foll said RELX and LSEG were not clear AI winners but on balance the downside risks of the lowly-valued stocks were small: “We think their proprietary data-set have the potential to provide a degree of insulation from these risks.”
Commenting on the market volatility caused by the US-Israel war on Iran, Foll said the key question was how long would oil prices remain high? This uncertainty underlined the importance of a diversified portfolio whose holdings in BP, Shell and Serica Energy would benefit from Brent crude at over $89 a barrel compared to $72 before the conflict. That offset the pain felt by their 20% exposure to industrial companies that were big energy consumers, she said.
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