Investment companies have an income advantage which is particularly important during difficult times like these when dividends are under pressure.
Unlike open-ended funds, investment companies don’t have to pay out all the income they receive from their portfolios each year. They can save up to 15% and tuck it into a revenue reserve. This means they can hold back some of the income they receive in good years and use it to boost dividends when businesses may be cutting theirs.
This structural benefit has enabled many investment companies to pay consistently rising dividends through both good and bad years for decades, a record that’s unrivalled by open-ended funds.
It’s important to remember that dividends are never guaranteed and so your income from investment companies, like your capital, can fall as well as rise. It’s the responsibility of investment companies’ independent boards of directors to decide on a dividend strategy that is in the best interests of shareholders.
The AIC dividend heroes are the investment companies that have consistently increased their dividends for 20 or more years in a row.
The next generation of dividend heroes are those that have increased their dividends for 10 or more years in a row but fewer than 20.
Source: AIC/Morningstar. Correct as at 18 January 2021.