Investors looking to earn dividends – similar to earning interest on their savings – will be interested to hear the Association of Investment Companies (AIC) latest list of ‘dividend heroes’.
Revealed this week, these 20 ‘heroes’ are investment companies that have increased their dividend for 20 years or more.
City of London Investment Trust is a member of Moneywise’s First 50 Funds list for beginner investors.
In addition, three other Moneywise First 50 Fund picks made the dividend heroes list. There were F&C Global Smaller Companies with 46 years of consecutive dividend rises, Witan Investment Trust with 42 years, and Scottish Mortgage Investment Trust with 33 years.
See the table below for the full results.
Job Curtis, manager at City of London Investment Trust, says: “In our view, the dividend yield from UK equities remains attractive compared with the main alternatives and dividend growth has been augmented by the fall in the value of sterling over the last nine months.”
Alex Crooke, manager at Bankers Investment Trust, adds: “The key is to invest in companies that themselves focus on cash generation and distributing dividends throughout economic cycles. The current outlook for income is more muted than previous years, partly because dividends, after lagging the recovery of corporate earnings post the 2008 crash, have now caught up.”
What are dividends?
Dividends are the amount of a company’s profits that are returned to shareholders in the form of a payment. The most common dividend frequencies are annually, biannually and quarterly. There are no uniform calendar dates for when dividends are paid; it depends on the individual company's ‘fiscal calendar’, the period used by the company for accounting and budget purposes.
For some investors, stable, high dividend payments are an essential reason for owning the shares they do – they use them to pay bills or, if they get enough back, to live on completely. Other people chose to reinvest dividends straight back into shares in order to take advantage of compounding.
Companies offer dividends as a reason to own their shares, and a big company cutting back on its pay-out is often big news. It’s usually interpreted as a bad sign – the company isn’t making a big enough profit, isn’t confident about the future, or is running out of capital.
However, sometimes a dividend is cut because the company would rather reinvest in itself– for example, to open a new site or fund an acquisition. In this case it’s short term pain for a hopefully rosier future, but what’s key is communicating this sufficiently well to investors.
Annabel Brodie-Smith, communications director at AIC, says: “It’s such an achievement to see three investment companies reach 50 years of consecutive dividend increases. In the current low interest rate environment, with inflation creeping up, the ability to ‘smooth’ dividends is a unique advantage of the investment company structure.”
In a double-whammy of news, the AIC has also changed its Dividend Hero logo in celebration of this event (see the picture to the top left).
|Company||Sector||Number of consecutive years’ dividend increased|
|City of London Investment Trust*||UK Equity Income||50|
|Bankers Investment Trust||Global||50|
|F&C Global Smaller Companies*||Global||46|
|Foreign & Colonial Investment Trust||Global||46|
|Brunner Investment Trust||Global||45|
|JPMorgan Claverhouse Investment Trust||UK Equity Income||44|
|Murray Income||UK Equity Income||43|
|Witan Investment Trust*||Global||42|
|Scottish American||Global Equity Income||37|
|Merchants Trust||UK Equity Income||34|
|Scottish Mortgage Investment Trust*||Global||33|
|Scottish Investment Trust||Global||33|
|Temple Bar||UK Equity Income||33|
|Value & Income||UK Equity Income||29|
|F&C Capital & Income||UK Equity Income||23|
|British & American||UK Equity Income||21|
|Schroder Income Growth||UK Equity Income||21|
|Northern Investors Company||Private Equity||20|
* Denotes a Moneywise 50 First fund.