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Income trusts pass the covid test

Income trusts pass the covid test, but for how long can they deliver?

Citywire Wealth Manager, Jennifer Hill, 30 March 2021

UK equity income trusts have weathered the dividend drought far better than their open-ended counterparts, an achievement largely down to investment trusts’ ability to draw on revenue reserves.

UK dividends plummeted 44% last year due to the Covid-19 crisis, according to Link Group’s UK Dividend Monitor. In spite of that, 91% of trusts in the UK equity income sector either increased or maintained the dividends they paid to shareholders, according to the Association of Investment Companies (AIC). The same can be said for only 4% of comparable open-ended funds.

‘For a retiree living off dividend income, that would have been a big blow,’ said James Carthew, head of investment trust research at Marten & Co.

Most UK equity income investment trusts – 19 of 23 – increased their dividends last year. Another two, Finsbury Growth & Income and Shires Income, maintained their payments. Only two made reductions: Temple Bar, which changed its manager after bearing the brunt of the value rout, and the British and American trust.

That is not to say that most UK equity income trusts escaped unscathed. For those that have reported full-year results for 2020, revenue return per share fell by an average of 18%, according to analysis by Numis Securities.

The depth of the decline reported by each trust has been influenced by its financial year-end. Those dated between January and March had not yet felt the full impact of dividend cuts and reported average declines of 2%, while those with year-ends between September and December bore the full force, with average reductions of 29%.

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