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The trusts to buy for rising dividends

Biotech trust Trump benefit may be shortlived

By Dave Baxter, Investors’ Chronicle, February 28, 2023:

High dividend yields can be hard to resist, and there are many currently on offer in the investment trust universe. But a high yield can reflect recent price volatility, as with embattled Home REIT (HOME), or be a result of an especially esoteric portfolio, an example being Fair Oaks Income (FAIR). A high yield is not always a free lunch.

A more important consideration, however, is whether a trust can grow its dividend over the long term and help investors to offset the ravaging effects of inflation. Trusts that can do this may well prove more useful as long-term holdings than the highest yielders.

The biggest names with a committed stance on this front are well-known. Funds on the Association of Investment Companies (AIC) dividend heroes list, such as UK income stalwart City of London Investment Trust (CTY), which was recently on a 4.7 per cent yield, and Bankers Investment Trust (BNKR), recently on 2.3 per cent, have raised their dividends for at least 20 years in a row. And names such as Murray International Trust (MYI) are included in the AIC’s list of “next-generation dividend heroes” after having increased their dividends for at least 10 years in a row.

Both lists are a useful starting point if you want to find funds committed to growing their dividends over time. However, the criteria used mean that many trusts in less mature sectors fail to make the cut. So at a time when the merits of rising dividends are especially obvious, it’s worth finding out which other trusts stand out for offering greater payouts over the years.

In-built linkage

Given the inflation-linked nature of some of their revenues, it’s unsurprising to see trusts invested in real assets standing out…

The renewables trusts have held up especially well amid the recent surge in inflation thanks to higher power prices, although were vulnerable to a rise in gilt yields late last year. However, it’s worth noting that not all of these types of trusts are committed to increasing their dividends in line with inflation. A commitment that the trust will do this or at least increase the dividend over time can be one key detail to seek out in its documents and reports. QuotedData’s head of investment company research, James Carthew, notes that NextEnergy Solar Fund (NESF) has maintained a policy of matching its dividend increases to inflation for now, although its board is more generally committed to a progressive dividend policy.

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