by Jennifer Hill from interactive investor, 10 May 2023:
Eight investment trusts have half a century or more of increasing payouts to investors but deeper analysis is required to ascertain their true income prowess, reports Jennifer Hill…
But dividend growth alone does not make a trust the best home for income seekers’ capital. A deeper delve into the data is needed to make an informed investment decision…
Dividend cover
Dividend cover is the ratio of company’s earnings (net income) over the dividends paid to shareholders. Investment trusts can only retain 15% of their income in revenue reserves, which naturally limits the level of cover…
Revenue reserves
So far, so good. Another, perhaps more illuminating statistic is the revenue reserves as a proportion of a year’s dividend…
It is also worth noting that investment trusts can use capital reserves to supplement their income following changes in regulation several years ago…
Dividend growth
The rate of dividend growth is another important consideration, shedding light on whether a dividend hero has increased its dividends by tiny amounts (well below inflation) to keep its track record going.
The fastest-growing dividends come from global equity proposition Alliance Trust. Alongside City of London and Bankers, it has the longest track record of growing its dividends at 56 consecutive years. Over the past five years, it has achieved dividend growth of 12.77% per annum, data from the Association of Investment Companies (AIC) shows.
James Carthew, head of investment companies at QuotedData, attributes this to a change in dividend policy.
“Our feeling is that its new dividend policy makes this the trust most likely to be able to support a progressive dividend almost regardless of the investment backdrop,” he says.
“The board seems keen to maintain the trust’s dividend hero status and, beyond its revenue reserves, can also tap into other reserves that should mean it can sustain progressive dividend growth from current levels.”
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