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.
“It’s remarkable that there are now eight dividend heroes with at least half a century of consecutive annual dividend increases. These dividend heroes are no strangers to difficult times, having raised their payouts to investors through the high inflation of the 1970s, recession of the 1990s and the global financial crisis in 2008. While dividends are never guaranteed, these are track records to be proud of.”
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC)
Investment Company Dividend Heroes
Find out more about the AIC dividend heroes, the investment companies that have successfully increased their dividend each year for at least 20 years, and the secret behind their success.
Recorded June 2019.
How investment companies can meet your income needs
Investment companies have important advantages for income-seeking investors. Watch this animation to find out more.
Recorded June 2019.
Expert views: investment companies for income
Financial advisers discuss the benefits of investment companies when it comes to paying income.
Recorded October 2019
Click on the terms below to see what they mean.
The annual dividends expressed as a percentage of the current share price.
If a company has paid an interim dividend of 2p, and a final dividend of 3p, and the share price is currently £1.25p, the dividend yield would be 4% (2p + 3p = 5p / 125p = 4%).
A dividend yield can give you an indication of the level of income you might get from an investment company share. However, depending on the performance of the company, future dividends may be higher or lower than indicated by the current dividend yield.
The dividend yields published by the AIC don’t include any special dividends paid.
Also shown as ‘ex div’ or ‘xd’, this means that, if you buy the shares today, you won’t receive the most recently declared dividend.
Shares are being traded all the time on stock markets, so for administrative reasons there needs to be a point when buyers and sellers agree whether they will receive the most recently declared dividend. The point when the shares purchased will no longer receive the dividend is known as the ‘ex dividend date’ and the shares are said to have ‘gone ex dividend’. The share price will normally fall by the amount of the dividend to reflect this.
If you buy the shares when you’re still entitled to the most recently declared dividend, this is known as the shares being cum dividend.
If you buy shares when you’re entitled to the most recently declared dividend, this is known as the shares being ‘cum dividend’.
A dividend paid in addition to normal regular dividends in circumstances which are unlikely to be repeated in the near future.
The number of years that the current revenue reserves can provide the current financial year of dividends, including estimates or forecasts. Where companies publish retained earnings in place of revenue reserves, we cannot always publish this information. Please be aware that revenue reserves are taken from the company's annual accounts and this may not include the final dividend payment (if applicable), or subsequent dividend payments, therefore the revenue reserves and dividend cover published may be higher than the actual cover following payment of the final dividend.
The undistributed income that the company keeps as reserves. Where companies publish retained earnings in place of revenue reserves, we cannot always publish this information. Please be aware that revenue reserves are taken from the company's annual accounts and this may not include the final dividend payment (if applicable), therefore the revenue reserves and dividend cover published may be higher than the actual amounts following payment of the final dividend.
Latest articles & media
Read more press releases and articles from the AIC.
Hardman Talks: Equity Income & AIC Dividend Heroes
Keith Hiscock and Riccardo Bindi are joined by Annabel Brodie-Smith, Communications Director of the AIC to talk about using investment companies to generate equity income and the work the AIC has published on what it calls “dividend heroes”.
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David Prosser weighs up whether bonds or equities are a better choice for income investors.
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David Prosser explores how investment companies’ borrowing can boost returns for investors.
Investment companies show their colours
David Prosser reflects on the features that make investment companies unique.
In search of income
David Prosser on the investment companies with dividends that can compete with the best savings accounts.
Taking the fight to inflation
David Prosser goes in search of inflation-busting income and capital growth.