2016 began with a rocky start for markets, but there is some better news for income seeking investors.
Today, the Association of Investment Companies (AIC) has published a list of the investment company sector’s dividend heroes – companies that have increased their dividends each year for at least 20 years. A number of investment companies have already announced a dividend increase for 2016. The AIC has collated views from dividend hero managers on the prospects for dividends this year (see below).
In January, Bankers Investment Trust announced its 49th year of consecutive dividend increases and last week Alliance Trust announced 49 years of consecutive rises, making them the second and third companies to reach this milestone to date.
February had a number of strong dividend increases. Brunner Investment Trust announced its 44th year of increases and Witan Investment Trust achieved 41 years. March has seen Foreign & Colonial Investment Trust reach 45 years.
2016 may be an exciting year for City of London Investment Trust, as they could become the first dividend hero to reach 50 years of consecutive dividend increases, an impressive achievement. For the full list of dividend heroes, please view the table.
Annabel Brodie-Smith, Communications Director, AIC, said: “After a bumpy start to the year, with some well-known companies cutting their dividends, it’s reassuring for investors that some investment companies have an unrivalled record of dividend increases. Many investment companies have been able to increase their dividends every year because they have the unique ability to squirrel away some of the income they receive each year for bad times ahead. This is known as dividend smoothing and is a particularly useful feature to boost dividend payments. So it’s not surprising that some investors may want to consider investment companies for their ISAs or pensions.”
Number of consecutive years dividend increased
|City of London||UK Equity Income||
|F&C Global Smaller Companies||Global||45|
|Foreign & Colonial Investment Trust||Global||45|
|JPMorgan Claverhouse||UK Equity Income||43|
|Murray Income||UK Equity Income||42|
|Scottish American||Global Equity Income||36|
|Merchants||UK Equity Income||33|
|Scottish Investment Trust||Global||32|
|Temple Bar||UK Equity Income||32|
|Value & Income||UK Equity Income||28|
|F&C Capital & Income||UK Equity Income||22|
|British & American||UK Equity Income||20|
|Schroder Income Growth||UK Equity Income||20|
Source: AIC using Morningstar
Discussing his view on the prospects for dividends this year, Alex Crooke, Manager of Bankers Investment Trust said: “Overall we are positive on the prospects for dividend growth in the year ahead, though sectors sensitive to falling commodity prices are likely to cut pay-outs to shareholders. Consequently, stock picking is vital in these market conditions so that income investors can avoid those stocks likely to produce poor shareholder returns.
“It remains possible to find companies in all regions that are expected to raise their dividends by around 5-6% but as always, it is essential not to overpay for this income. As a result we have a preference for the telecoms and healthcare sectors where we can find stocks with decent dividend yields, strong free cash flow characteristics and attractive dividend growth potential.”
Job Curtis, Manager of City of London Investment Trust said: “The fall in sterling compared with the US dollar in recent months has given a positive translation effect to those dividend payments from UK companies that are paid in US dollars. Special dividends have been announced by a variety of companies including Croda (in the chemicals sector,) ITV, Direct Line and Hiscox (in the nonlife insurance sector).
“Lloyds Bank pleased the market with a significant increase in its final dividend and also by announcing a special dividend. In contrast, Barclays surprised the market by guiding to a cut in its 2016 dividend. In the mining sector, which has been adversely affected by the fall in commodity prices, dividend cuts were widespread, as had been generally expected by investors.
“Looking ahead, there remains both stock specific risks and opportunities so there are advantages to obtaining equity income from a diversified investment trust with revenue reserves.”
Alastair Mundy, Manager of Temple Bar said: “The mean dividend yield of the UK equity market is greater than the median and the number of stocks yielding more than the market is the lowest it has been for many years. In addition, many of the highest yielding stocks are now paying their dividends out of debt and consequently these payments are vulnerable. Of course, one should be supportive of companies paying their dividends with an eye to their long-term earnings, provided that these are not paid out in preference to essential expenditure in the core business. The high dividend yields of a number of stocks suggest that shareholders now believe this is the case.”
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- Source: AIC using Morningstar, 04 March 2016
- 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 344 members and the industry has total assets of approximately £132 billion.
- 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.