The Association of Investment Companies (AIC) has updated its ‘dividend heroes’ list. 

These are the 20 investment trusts that have consistently increased annual dividends for at least two decades. 

Half of the elite group highlighted by the trade body for investment companies, in an announcement last week, have done so for 50 or more consecutive years.  

Leading the group with 58 years of rises are City of London (CTY ), Bankers (BNKR ) and Alliance Witan (ALW ), closely followed by Caledonia Investments (CLDN ). 

Global equity income trust Murray International (MYI ) is the newest addition to the list, having announced it had made the cut in recent results. 

‘Our dividend heroes have shown remarkable resilience whilst continuing to raise their payouts during recent and historic high inflationary periods in the 1970s, the recession of the 1990s, the global financial crisis in 2008 and the pandemic,’ said Annabel Brodie-Smith, communications director of the AIC.

‘Whilst dividends are never guaranteed, investment trusts’ dividend hero track records are exceptional.’ 

In recent years, more trusts have been turning to capital reserves as a source of extra ammunition for dividend payouts. That is partly due to an increasing number of their underlying companies choosing to undertake share buybacks over dividends.

But it also makes good use of the investment trust structure, despite some reservations among traditionalists. 

As Brodie-Smith explained: ‘Investment trusts are particularly suitable for income investing over the long term. They can retain up to 15% of the income they receive each year, and this reserve of income can be used to boost dividends when markets are tough. This allows investment trusts to smooth their flow of dividends and produce these long records of dividend growth’. 

In terms of sectors, UK equity-focused trusts make up half the list, but there are eight global trusts across three different sub-sectors. Caledonia has a multi-asset strategy, including private equity, but Value and Indexed Property Income (VIP ) is the only constituent focused purely on an alternative asset class. The £78m trust invested in a mix of UK equities and real estate until 2021, when it shifted entirely to the latter.

Source: The Association of Investment Companies; Morningstar 13/3/23

This week the AIC folloed up with its list of the ‘next generation of dividend heroes’. This list showcases 30 trusts that have increased their dividends for 10 years or more consecutively – but haven’t yet wracked up the 20 years that would grant them the highly-marketable divdend hero status. 

Henderson High Income Trust (HINT ) and BBGI Global Infrastructure (BBGI) are unlikely to make it to the two decades, however, given they are subject to respective merger and takeover plans. 

In general, the next-generation list has more of the alternatives trusts that have become an important part of the sector in recent times. 

In that vein, Patria Private Equity (PPET ) and Foresight Solar Fund (FSFL ) are the newest entrants. 

‘Historically, there has been a debate over whether private equity trusts should be purely about capital growth or not. However, the board of PPET has consistently prioritised returning cash to shareholders, effectively an ongoing return of capital at NAV, over the long term, said Alan Gauld, Patria’s lead manager. 

‘We feel it’s a feature that is attractive to many investors, particularly retail, and believe that having a consistent dividend policy has helped build trust with PPET’s shareholders.’

Source: The Association of Investment Companies; Morningstar 20/3/23