Seven investment companies join the next generation of dividend heroes

Following the announcement of the dividend hero investment companies last week, the Association of Investment Companies (AIC) has released an updated list of the next generation of dividend heroes. These are the 23 investment companies waiting in the wings to become dividend heroes, having increased their dividends for 10 or more consecutive years but less than 20.

Seven investment companies join the next generation this year having notched up a decade of consecutive annual dividend increases. The new joiners are: Chelverton UK Dividend, Invesco Select Trust Global Equity Income¹, JPMorgan Elect Managed Income, Aberforth Smaller Companies, TR Property, Henderson Opportunities Trust and Fidelity European Trust.

Athelney leads the next generation of dividend heroes having increased its dividend for 18 consecutive years. Completing the top three are BlackRock Smaller Companies (17) and Henderson Smaller Companies (17) with Artemis Alpha Trust (16) and Murray International (16) following close behind.

So far in 2021, seven investment companies in the next generation of dividend heroes have announced dividend increases. Last week (17 March), Fidelity European Trust achieved its 10th annual increase. Earlier in March, Murray International raised its dividend for the 16th year in a row. Law Debenture Corporation (11), Athelney (18) and Henderson Opportunities Trust (10) announced increases in February and Aberforth Smaller Companies (10) and Aberdeen Asian Income (12) increased their dividends in January.

Research from the AIC found that 85% of equity income-paying investment companies increased or maintained their dividends in 2020 compared to 23% of income-paying open-ended funds.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Investment companies’ structural advantages have contributed to their strong income record during a bleak year for income investors. The ability to save up to 15% of the income they receive each year to boost income for shareholders in difficult times really came into its own. These income benefits helped seven investment companies join the next generation of dividend heroes this year as they continued to deliver rising dividends to shareholders.

“It’s always encouraging to see the impressive track records of the dividend heroes and next generation of dividend heroes. However, it’s important investors remember that dividends are never guaranteed.”

Comments from the new joiners

Sam Morse, Portfolio Manager of Fidelity European Trust, said: “I am delighted that Fidelity European Trust has been recognised in the next generation of dividend heroes, especially because my own investment process is built around identifying steady dividend growers. I have always believed that those companies that are consistently able to grow their dividends, irrespective of the market environment, will outperform the market over the longer term.  

“As we emerge from the Covid crisis we have seen a number of companies change their dividend policies and the outlook remains uncertain – but I am pleased that our process has proven robust during a difficult 2020 and that the investment company structure, which allows us to keep dividend reserves for just such tricky periods, has stood us in good stead. Fidelity’s analysts, Marcel and I continue to look for attractively valued companies that have solid fundamentals and which are able to grow their dividends over a three to five-year horizon.”

Stephen Anness, Manager of Invesco Select Trust’s Global Equity Income Share Portfolio, said “I am extremely pleased that the Invesco Select Trust Global Equity Income Share Portfolio has joined the next generation of dividend heroes having increased its dividend for ten consecutive years. The trust aims to provide shareholders with sustainable real income growth whilst growing capital above the return of the benchmark, on a rolling five-year view. As dividends are an important component in total returns earned, our investment approach prioritises companies with sound balance sheets and strong cash flows able to grow dividends over time.

“Whilst we acknowledge the inevitable ups and downs in the economic cycle, 2020 has been a salutary lesson in illustrating the benefit of closed-ended structures being able to pay dividends from reserves, unlike open-ended funds. The Invesco Select Trust Global Equity Income Share Portfolio has continued to increase its dividend payment, and due to its structure and the support of the board, has the flexibility to invest in a more diverse range of equities from what is normally seen in an ‘equity income’ fund. This includes some higher growth companies with a lower initial dividend which offer an attractive entry price.”

James Henderson, Co-Manager of Henderson Opportunities Trust, said: “Henderson Opportunities Trust’s objective is to achieve capital growth in excess of the FTSE All-Share. While the focus is capital growth, we do seek dividend growth over time and the way to grow your dividend over the long term is to focus hard on growing the capital, as it is capital growth that provides the asset backing to produce sustainable dividend growth. Henderson Opportunities Trust invests in companies across the UK market cap spectrum and when the companies held in the portfolio prosper, in time, they generate cash that comes back to the shareholders through a dividend. In our view, this is how good dividend growth is achieved and how we approach income for Henderson Opportunities Trust.”

David Horner, Fund Manager of Chelverton UK Dividend, said: “The trust only invests in fully listed companies or companies whose shares are traded on AIM. These companies have to yield in excess of 4% on a prospective basis and cannot be members of the FTSE 100. Since the EU referendum the trust has faced a headwind as its universe of investible companies, namely small and mid-cap stocks – which are highly UK-centric – have been deeply out of favour. These sorts of companies were also of course badly hit in March and April 2020 when dividends were unceremoniously cut or eliminated.

“However, since the global financial crisis, the trust has been strategically building up its revenue reserves, to address just this scenario. In the current year it has been able to increase its core dividend by 4.2%, partially paid out of revenue reserves. The trust has ‘dividend’ in its name and its objective is to keep growing it!”

Katen Patel, Co-Manager of JPMorgan Elect Managed Income, said: “Elect Managed Income seeks to provide growing income, with the potential for capital growth, from a portfolio of UK listed equities. The trust aims to invest in attractively valued, high quality companies with strong balance sheets and cash generation. Despite cuts to dividend payments across the UK market since the start of the pandemic, the trust has benefitted from the substantial revenue reserves built up in recent times to ensure the continued growth of dividends to shareholders.”

The next generation of dividend hero investment companies at 22 March 2021

Source: AIC/Morningstar. Invesco Select Trust consists of four pools of assets. It is the Global Equity Income pool that has increased its dividend for 10 consecutive years. N/A shows where the investment company is younger than the timeframe.

Full dividend information on each investment company is available on the AIC’s website www.theaic.co.uk. The website shows each investment company’s revenue reserve. This is the income which has been retained by an investment company which can be used to support dividends in more difficult years. The website also shows each investment company’s dividend cover. This shows how many years the current revenue reserve could pay the investment company’s last full financial year of dividends.

The AIC’s website also offers Income Finder, a suite of tools and resources to help income-seeking investors research investment companies. Investors can build a virtual portfolio of income-paying investment companies, track dividend dates and see how much income they could have received over a year.