Investment trust insider on income in time of inflation – James Carthew: Choppy outlook for income folk
One question I have been pondering is, how would an income investor reliant on a portfolio of investment companies be faring now? Unfortunately, it looks as though some belt-tightening would be required.
For example, companies that adopted a dividend policy of paying a proportion of their income from capital each year, of which there are quite a few, may have a problem. This year, following a period of poor capital performance, many of those dividends may be static or falling.
Trusts such as JPMorgan Global Growth and Income (JGGI) and Invesco Asia (IAT), which pay out around 4% of net asset value (NAV) each year, fall into this category. Both their NAVs were flat over 2022, which given the turbulent markets was not a bad result. However, meaningful dividend growth this year is unlikely as a result.
For Invesco Asia, its 4% dividend yield, while attractive, is not the primary reason why most investors would buy this trust. They would probably be more interested in the fact that it has delivered twice the return of its MSCI AC Asia ex-Japan benchmark over the past 10 years.
For JGGI, there is some potential frustration for shareholders about the real terms fall in dividends. That could grow if markets go sideways or fall this year and I wonder whether the fashion for manufacturing income from capital will abate.
For those investment companies generating the revenue they distribute… read more here