Temple Bar ups dividend as board keeps eye on changing UK market
Temple Bar (TMPL ) is getting ready to move with the times.
The £856m equity income trust is overhauling its dividend policy, in response to an increasing emphasis on share buybacks in the UK market, where the dwindling pool of companies is also prompting reflection on the future of the investment strategy.
Temple Bar chair, Richard Wyatt, said that the shrinking opportunity set will have to be ‘monitored closely’. In annual results released on Friday, Wyatt underlined the scale of the trend, noting that the number of UK-listed companies greater than £1bn in market value is now only 201 – 21 of these are currently held by the trust.
2024 saw a continuation of the pickup in takeover bids in the sector, as both corporate and private equity investors took advantage of attractively low valuations in the UK market. Four of the trust’s holdings were subject to bids in the year, in each case at a significant premium to the prevailing share price.
This raises the question for the trust, Wyatt explained: when does the UK investable universe become too small for Temple Bar’s current investment strategy?
The answer, according to fund managers Nick Purves and Ian Lance, is not yet.
Last year, Temple Bar delivered underlying net asset value (NAV) returns of almost 20%, double the FTSE All-Share Index’s 9.5%. Share price total returns, including dividends reinvested, stood at 19.1%.
Shareholders have enjoyed a further 10.1% gain in 2025 so far, according to Deutsche Numis data, versus a 5.3% rise for the FTSE.
In the fund managers’ view, the long-term outlook for the UK equity market remains positive.
Looking towards 2025, they said: ‘The consensus view today is that American “exceptionalism” will continue, suggesting to us that expectations are already high and that the potential for disappointment is great.
‘The UK stocks market in contrast contains a good number of neglected companies, where the bar of expectation is much lower, and where the likelihood of positive surprise is much greater.
‘Accordingly, we believe that the long-term outlook for investment returns in the UK stock market is better. The ability to be truly long term is the biggest advantage that one can have in the stock market today and we are optimistic that we can continue to use this advantage to generate excess investment returns for the trust’.
The trust’s current policy, which the board said it may propose changing in future, is to allow Redwheel fund managers Purves and Lance to invest up to 30% outside the UK.
The trust is 77% invested in London-listed companies currently, according to the latest factsheet.
Change in dividend policy
The report explains that a ‘significant portion’ of the trust’s gains last year were fuelled by companies ‘using cash flows to buy back cheap shares.’
More than half of the portfolio’s holdings bought back stock in 2024.
According to analysis by trading platform AJ Bell, the year marked a ‘near record’, with FTSE 100 companies committing to £56.5bn in buybacks during 2024.
Though that has helped lead to higher share prices for investors, it will also mean Temple Bar receives less dividends from its underlying portfolio over time.
To address this ‘distributional shift’ and to prevent shareholder income from falling too low, the trust plans to draw on capital reverses to enhance payouts in coming years.
The revised dividend policy would see the recent quarterly dividends declared by the company of 3.0p per share rise to 3.75p per share, representing an annualised dividend yield of around 5%.
It is unclear how that dividend could rise from here.
2024’s winners and losers
The trust profited from ‘significant rises’ in the share prices of the three UK listed banks, NatWest Group, Barclays, and Standard Chartered, in 2024. Each contributed 2% or more to returns, as did Currys.
Currys also received a private equity bid at a large premium during the year, which was rejected on the basis it undervalued the electronics retailer – a stance Purves and Lance agreed with.
Strong performance from Marks & Spencer and ITV also stood out.
The one notable detractor over the year was international holding Stellantis, with shares in the owner of Fiat and Chrysler falling 40%.
New investments were also made in British Airways-owner International Consolidated Airlines, Direct Line , ABN Amro and asset manager Aberdeen.
In the three years to yesterday, TMPL shareholders have enjoyed a 46.4% total return, versus 25.1% for the FTSE All-Share, according to Deutsche Numis.
