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What is the future of trust dividend heroes following consolidation?

Biotech trusts top performance charts in February

Kathleen Gallagher, Investment Week, 17 November 2021• 2 min read

In the past 18 months, four trusts have fallen off the Association of Investment Companies’s (AIC) dividend hero list for various different reasons.

However, investment trust experts are cautiously optimistic the list will grow over the next few years, with the main barrier to that growth being continued corporate action from boards and consolidation within the industry.

Last month the Scottish Investment Trust, which has been around since 1887, was the latest dividend hero to announce a proposal that, if approved, would end its dividend hero status.

The board of the £679.8m Scottish Investment trust (SCIN) is proposing a merger with the £735.2m JP Morgan Global Growth & Income trust (JGGI), following a strategic review.

Also in the corporate activity space, the Perpetual Income & Growth trust merged with another dividend hero, Murray Income, in November 2020 while Invesco Income Growth merged with a non-dividend hero, Invesco Select trust, in December that year.

Meanwhile, Temple Bar trust was forced to cut its dividend because of a combination of high gearing and a strong value crisis heading into the Covid-19 crisis.

Mick Gilligan, head of managed portfolios at Killik, said that if the next couple of years are “quiet on the corporate action front” for those on the list then they will likely see more trusts join their ranks.

He pointed to Athelney UK Smaller Companies, BlackRock Smaller Companies and Henderson Smaller Companies who will all be eligible to join the heroes list in two years’ time if they continue to increase pay-outs.

These trusts are all part of the AIC’s next generation of dividend heroes, which are companies that increased their dividends for ten or more years in a row but fewer than 20.

James Carthew, head of investment companies at QuotedData, also thought the hero list might grow over time.

However, he pointed out that investors should not think the “distinguished history of these companies clouds the decision making of boards whose job it is to keep funds relevant and managers on their toes”.

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