8th March 2016
This year may well have endured a rocky start with a number of high profile companies having cut their dividends. But on the flip side a number of investment companies have already upped their payouts in 2016.
According to trade body, the Association of Investment Companies (AIC), in January, the Bankers Investment Trust announced its 49th year of consecutive dividend increases and last week Alliance Trust also announced 49 years of consecutive rises, making them the second and third companies to reach this milestone to date.
Looking at the prospects for dividends this year, Alex Crooke, manager of the Bankers Investment Trust, said: “Overall we are positive on the prospects for dividend growth in the year ahead, though sectors sensitive to falling commodity prices are likely to cut pay-outs to shareholders. Consequently, stock picking is vital in these market conditions so that income investors can avoid those stocks likely to produce poor shareholder returns.
“It remains possible to find companies in all regions that are expected to raise their dividends by around 5-6% but as always, it is essential not to overpay for this income. As a result we have a preference for the telecoms and healthcare sectors where we can find stocks with decent dividend yields, strong free cash flow characteristics and attractive dividend growth potential.”
February had a number of strong dividend increases. Brunner Investment Trust announced its 44th year of increases and Witan Investment Trust achieved 41 years. Final results are also due this month from Foreign & Colonial Investment Trust, who if able to announce another dividend increase, will hit 45 years.
This year may be an exciting year for City of London Investment Trust, as they could become the first dividend hero to reach 50 years of consecutive dividend increases, an impressive achievement.
The fund’s manager Job Curtis said: “The fall in sterling compared with the US dollar in recent months has given a positive translation effect to those dividend payments from UK companies that are paid in US dollars. Special dividends have been announced by a variety of companies including Croda, ITV, Direct Line and Hiscox.
“Lloyds Bank pleased the market with a significant increase in its final dividend and also by announcing a special dividend. In contrast, Barclays surprised the market by guiding to a cut in its 2016 dividend. In the mining sector, which has been adversely affected by the fall in commodity prices, dividend cuts were widespread, as had been generally expected by investors.
“Looking ahead, there remains both stock specific risks and opportunities so there are advantages to obtaining equity income from a diversified investment trust with revenue reserves.”
Annabel Brodie-Smith, communications director, AIC, said: “After a bumpy start to the year, with some well-known companies cutting their dividends, it’s reassuring for investors that some investment companies have an unrivalled record of dividend increases.
“Many investment companies have been able to increase their dividends every year because they have the unique ability to squirrel away some of the income they receive each year for bad times ahead. This is known as dividend smoothing and is a particularly useful feature to boost dividend payments. So it’s not surprising that some investors may want to consider investment companies for their ISAs or pensions.”
|Company||Sector||Number of consecutive years dividend increased|
|City of London Investment Trust||UK Equity Income||49|
|Bankers Investment Trust||Global||49|
|F&C Global Smaller Companies||Global||45|
|Foreign & Colonial Investment Trust||Global||44|
|Brunner Investment Trust||Global||44|
|JPMorgan Claverhouse Investment Trust||UK Equity Income||43|
|Murray Income||UK Equity Income||42|
|Witan Investment Trust||Global||41|
|Scottish American||Global Equity Income||36|
|Merchants Trust||UK Equity Income||33|
|Scottish Investment Trust||Global||32|
|Scottish Mortgage Investment Trust||Global||32|
|Temple Bar||UK Equity Income||31|
|Value & Income||UK Equity Income||28|
|F&C Capital & Income||UK Equity Income||22|
|British & American||UK Equity Income||20|
|Schroder Income Growth||UK Equity Income||20|
Source: AIC using Morningstar