By Val Cipriani, Investors’ Chronicle, June 1, 2023:
Investment trusts are announcing below-inflation dividend increases, making it more difficult for investors to maintain the real value of their income – although some might be able to catch up in 2024 or 2025.
Last week, core infrastructure trust HICL Infrastructure (HICL) said it intends to maintain its flat dividend target for the years to March 2024 and 2025, which Stifel analysts deemed “disappointing given higher inflation”. Infrastructure trusts have inflation linkage built into their revenues and are at an advantage in inflationary environments, although they still have to contend with discount rates.
With consumer price index (CPI) inflation standing at 8.7 per cent in April, HICL is not the only trust that cannot afford to keep up with it, although others are coming closer.
James Carthew, head of investment company research at QuotedData, said it was “extremely hard” for trusts to keep pace because, for most of them, higher inflation does not mean improved revenues. In fact, having to contend with higher interest rates and price increases means that companies might have to be more cautious with their income distributions, just when inflation is eating away at their real value.
Even when company dividends look healthy, investment trusts are not always in a position to pass them on in their entirety. For example, last year’s dividends for the FTSE All-Share were up about 16 per cent on 2021, a level the major trusts in the UK equity income sector have not been able to match so far.
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