Dividend hero investment companies deliver inflation-demolishing dividend growth despite “ultimate stress test” of COVID-19

94% of dividend heroes beat inflation.

AIC Pastilles RGB

Dividend hero investment companies have grown their dividends to shareholders well ahead of inflation over the past five years, according to new data from the Association of Investment Companies (AIC).

17 of the 18 dividend heroes (94%) have delivered compound annual dividend growth ahead of the UK Consumer Prices Index (CPI) over five years. (1) The AIC dividend heroes are investment companies which have increased their dividends for 20 or more years in a row.

Income growth is similarly strong in the next generation of dividend heroes, investment companies which have grown dividends for ten or more consecutive years but fewer than 20. 22 of 24 (92%) investment companies in the next generation of heroes have delivered five-year dividend growth ahead of the CPI.

In the investment company equity income sectors, 100% of Asia Pacific Equity Income, 86% of Global Equity Income and 82% of UK Equity Income investment companies beat inflation. (2)

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Inflation hasn’t been at the top of investors’ worry list for a long time. But with economies reopening quickly from the pandemic and a perception that central banks may be softening on keeping prices in check, it’s easy to see why investors are becoming more concerned. Investment companies’ ability to hold back up to 15% of their income each year in a revenue reserve gives them a huge advantage in delivering inflation-busting income to investors. This means they often have dividends to draw on in years where income would otherwise have fallen short, something investors were thankful for during the pandemic last year.”

Manager comments from the dividend heroes and next generation of dividend heroes

Bruce Stout, Investment Manager of Murray International Trust, said: “Inflation is the silent assassin of wealth. Whilst sharp equity market declines and violent bouts of evaporating investor confidence may grab the news headlines and be recognised as instantaneous perpetrators of capital loss, the covert decay of spending power through prices rising faster than incomes seldom attracts much attention. And why should it? For the current investment generation brought up on a diet of debt, deflation and digital disruption, inflation arguably remains an alien concept. Confined to the history books alongside the dodo, mammoth and other extinct species, such belief not only appeared logical but also essential. How else could the current extended valuations of so-called growth assets, that thrive in deflationary circumstances, be justified?

“Yet contrary to expectations and inherent prejudice, global inflation appears to be alive and well. As the world emerges from the global COVID pandemic, failure of global supply chains to keep up with extraordinary pent-up demand has fanned the flames of inflation once again. For income focused investors, relying on real dividend growth to pay for the rising cost of living, these are increasingly anxious times. Truly globally diversified investment trusts focusing on delivering sustainable income growth from the underlying portfolio of investments offer an increasingly attractive option under such circumstances. Unburdened by geographical confines, sector restraints, asset class constrictions or benchmark obsessions, such trusts can invest anywhere to focus on companies truly committed to increasing dividend payouts and long-term wealth creation for shareholders. By investing wisely and globally, the world is truly becoming the oyster for sustainable real income growth.”

Job Curtis, Fund Manager of The City of London Investment Trust, said: “The City of London Investment Trust aims to be predominantly invested in cash generative companies which can consistently grow their dividends. In addition, the investment trust structure allows for up to 15% of revenue to be retained in the good years for dividends and put into a revenue reserve rather than paid out. The revenue reserve can then be drawn down in the difficult years for dividends allowing an investment trust to continue to maintain or increase its dividend.

“In 2020, the pandemic and lockdown of the economy caused significant disruption to dividends. However, The City of London Investment Trust was able to increase its FY2020 dividend by 2.2%, partly funded from revenue reserves. This was the 8th year out of 29 that City of London has drawn down revenue reserves; during the other 21 years the revenue reserve has been added to. In general though, the outlook for dividends is improving given the reopening of the UK and overseas economies and strong economic growth.”

Will Meadon, Portfolio Manager of JPMorgan Claverhouse Investment Trust, said: “COVID-19 hugely disrupted equity dividend distributions in 2020, and the UK stock market was no exception. That said, many investment trusts continued to show their resilience in distributing income, particularly those with strong dividend reserves.

“Investment trusts are unique because they are not obliged to distribute all their income in the year it is earned. In times of plentiful dividends, they can tuck away up to 15% of their income for tougher times which will, at some stage, inevitably follow. These reserves can then be drawn upon to maintain or even increase dividends when income is scarce. COVID-19 was the ultimate stress test, and many of those investment trusts with strong dividend reserves came into their own.”

Investment company dividend heroes

Investment company

AIC sector

Number of consecutive years dividend increased

Dividend yield (%)

5-year annualised dividend growth rate (%)

City of London Investment Trust

UK Equity Income

54

4.9

4.4

Bankers Investment Trust

Global

54

1.9

6.4

Alliance Trust

Global

54

1.5

5.6

Caledonia Investments

Flexible Investment

54

2.0

3.2

BMO Global Smaller Companies

Global Smaller Companies

50

1.0

12.0

F&C Investment Trust

Global

50

1.4

4.7

Brunner Investment Trust

Global

49

2.0

5.6

JPMorgan Claverhouse Investment Trust

UK Equity Income

48

4.2

6.5

Murray Income

UK Equity Income

47

3.8

1.4

Scottish American

Global Equity Income

47

2.5

2.3

Witan Investment Trust

Global

46

2.3

9.9

Merchants Trust

UK Equity Income

39

5.2

2.6

Scottish Mortgage Investment Trust

Global

39

0.3

2.9

Scottish Investment Trust

Global

37

2.9

13.2

Value and Indexed Property Income

Property - UK Commercial

33

5.7

6.1

BMO Capital & Income

UK Equity Income

27

3.6

2.6

Schroder Income Growth

UK Equity Income

25

4.1

4.1

Aberdeen Standard Equity Income

UK Equity Income

20

5.6

7.0

Source: AIC/Morningstar. Data as at 27 May 2021.

Next generation of investment company dividend heroes

Investment company

AIC sector

Number of consecutive years dividend increased

Dividend yield (%)

5-year annualised dividend growth rate (%)

Athelney

UK Smaller Companies

18

4.1

6.8

BlackRock Smaller Companies

UK Smaller Companies

17

1.7

13.7

Henderson Smaller Companies

UK Smaller Companies

17

1.9

11.7

Artemis Alpha Trust

UK All Companies

16

1.1

7.9

Murray International

Global Equity Income

16

4.5

3.2

BlackRock Greater Europe

Europe

14

1.0

4.2

Schroder Oriental Income

Asia Pacific Equity Income

13

3.6

5.2

Aberdeen Asian Income

Asia Pacific Equity Income

12

4.0

1.8

CQS New City High Yield

Debt - Loans and Bonds

12

8.2

0.7

Henderson Far East Income

Asia Pacific Equity Income

12

7.2

3.7

International Public Partnerships

Infrastructure

12

4.4

2.7

Fidelity Special Values

UK All Companies

11

2.0

11.6

Invesco Select Global Equity Income

Global Equity Income

11

3.1

3.4

Law Debenture Corporation

UK Equity Income

11

3.7

11.2

Lowland

UK Equity Income

11

4.3

7.9

TR Property

Property Securities

11

3.3

11.2

Aberforth Smaller Companies

UK Smaller Companies

10

2.2

5.1

Chelverton UK Dividend

UK Equity Income

10

4.4

6.1

Dunedin Income Growth

UK Equity Income

10

4.1

2.3

Fidelity European

Europe

10

2.2

14.3

Henderson Opportunities

UK All Companies

10

1.8

8.4

JPMorgan American

North America

10

1.1

11.0

JPMorgan Elect Managed Income

UK Equity Income

10

4.5

4.3

North American Income

North America

10

3.6

8.7

Source: AIC/Morningstar. Data as at 27 May 2021.

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 has 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.

-ENDS-

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Notes to editors

  1. The annualised rate of CPI in the five years to April 2021 was 1.8%.
  2. Five out of five (100%) of investment companies in the Asia Pacific Equity Income sector have five-year annualised dividend growth rates higher than CPI. Six out of seven (86%) investment companies in the Global Equity Income sector have five-year annualised dividend growth rates higher than CPI. 18 out of 22 investment companies in the UK Equity Income sector (82%) have five-year annualised dividend growth rates higher than CPI.
  3. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 360 members and the industry has total assets of approximately £249 billion.
  4. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.
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