Andrew Courtney, for Investment Week, 15 March 2023:
The dividend hero and next generation hero lists published by the AIC are a great marketing tool for the investment companies industry and tend to generate a considerable amount of press attention, despite being a relatively simplistic yardstick (funds that have grown their dividend every year for at least 20 and ten years, respectively).
However, while increasing dividends is certainly a positive, it might not be the best indication of which funds to buy for income. Many of these funds have only made token increases in their dividends over the last few years.
There are also a number of companies on the list who have not generated positive real returns over the long term.
While that is certainly understandable in the market turmoil post pandemic, it becomes less so given historically low levels of inflation in the decade following the GFC.
I am sure these companies had good reasons to decrease their dividend growth, however the point is to show that it can be important to look beyond the surface level of the data.
Finally, the dividend hero list takes no account of total return. It is a good thing to have an increasing dividend; however, if a company is continually underperforming, or losing capital, it becomes much less important.
A different way of measuring
As an alternative, QuotedData has screened for funds which have offered income growth above the risk-free rate (ten-year gilt yield), while outperforming the MSCI All Country World Index over the last five and ten years on an annualised total return basis.
This proved a high bar with only nine companies making the grade. Of these, only Caledonia Investments was included in the dividend heroes list while CT Private Equity and Invesco Select Global Equity are both in the next gen list.
Read more here