Investment trust insider on dividend heroes – James Carthew: ‘Dividend hero’ trusts do the right thing
Some of the big beasts of the investment company sector have recently published results that cover the impact of Covid-19 on their finances. Among them are a number of ‘dividend hero’ investment trusts that have increased their dividend each year for over 20 years or more.
Witan (WTAN) has now managed 46 years of consecutive dividend increases, F&C (FCIT) has chalked up 50 and Alliance Trust (ATST) is celebrating 54 years. In each case, the trust had to dip into its revenue reserves last year to maintain this track record. But then, that is the point of having the revenue reserve in the first place and for many trusts, it will not be the first time they have done it.
The Association of Investment Companies, the trade body that assiduously promotes the dividend heroes, has published statistics showing more than 85% of equity-focused investment companies yielding more than 1% maintained or increased their dividends last year. The vast majority increased payouts.
This compares with just 23% of open-ended funds which managed to hold or increase payouts during last year’s widespread dividend cuts. The contrast is particularly stark for UK equity income: whereas 91% of closed-end investment companies maintained or increased their dividends in 2020, just 4% of open-ended funds did.
When you combine this with performance data for shareholder returns to 31 January, that shows over five years and 10 years the average UK equity income investment trust beats the average equivalent open-ended fund by 5.9% and 18.6% respectively, underscoring the attraction of using closed-end funds for equity income.
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