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F&C flags 50th year of rising dividends after flat, but furious, first half

30 July 2020

The UK's oldest investment trust is on track to increase its dividend for the fiftieth year in a row in 2020 after emerging from the coronavirus crash intact.

At a time when investors have suffered income cuts and cancellations, F&C Investment Trust (FCIT ) has confirmed it is on track to deliver its fiftieth consecutive payout increase.

The UK’s oldest investment trust paid a third interim dividend of 2.9p per share for the year ending 31 December and a final dividend of 2.9p in May, all of which were fully covered by earnings. 

Trust chair Beatrice Hollond said a ‘steadily rising income stream’ was important to shareholders and the trust had built reserves of more than one year’s worth of dividends to use in tough times. 

‘This is such a time,’ she said. ‘Shareholders can therefore expect an increased dividend for 2020 that will not only mark 50 consecutive years of increases but also 152 years of annual dividend payments.’

The trust will pay its first interim dividend for 2020 of 2.9p in August despite Hollond noting that many holdings had ‘been cutting or passing dividend payments’, reducing the revenue of the trust by 29% to 5,74p per share in the first half of the year.

The increased payout will maintain the trust as one of the Association of Investment Companies’ (AIC) ‘dividend heroes’ of trusts that have paid unbroken dividends for 20 years.

Paul Niven, manager of the £3.7bn global equities trust, has used the Covid-19-induced downturn to cut his exposure to high-yielding value stocks, which continued their decade-long run of poor performance during the sell-off.

While FCIT delivered a small return in the six months of 0.7% to 30 June against a 0.4% gain in the FTSE All World benchmark, its net asset value (NAV) declined 0.9% due to the repricing of the fair value of the its’s debt, which detracted 0.9% from returns. 

Returns were helped by the fund’s external US growth manager T Rowe Price, which delivered ‘exceptional returns of 18.5%’, with the two largest holdings - Amazon (AMZN.O) and Microsoft (MSFT.O) - soaring 50% and 30%, respectively.

Conversely, value stocks fell 11.6% in the same period as Niven said companies ‘trading on lower multiples but with greater sensitivity to short-term fluctuations in the economy underperformed markedly coming into the crisis and, unusually, also underperformed as economic prospects improved’. 

He had reduced exposure to these types of value stocks, such as US energy company Chevron (CVX.N) ahead of the market set back, and also trimmed European exposure, which reduced the fund’s weighting to Shell (RDSb). 

The European portion of the trust underperformed, delivering a return of 2.4% over the period, although despite this Niven said Europe was an ‘area of relative strength’.

‘Limited exposure to the banking sector, which performed poorly, and some strong stock selection in companies such as Delivery Hero (DHER.DE), the online food delivery platform whose business models were robust to the effects of the pandemic, helped our relative returns,’ he said. 

Niven (pictured), who also runs a number of multi-asset funds for BMO Asset Management, said the reductions in Europe and value stocks ‘funded new allocations in our global strategy component’, which is the part of the portfolio made up by global income and global smaller companies stocks. However, global strategies declined 3.3% in the six months.  

An assessment of the trust during the pandemic found it ‘strong and well positioned’, said Hollond, bolstered by revenue reserves, high levels of diversification, and low interest costs on fixed rate borrowings. 

Investment company news brought to you by Citywire Financial Publishers Limited.

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