Looking for consistent dividend increases? Here are the investment trusts to consider

14 March 2018

Four investment trusts have now delivered consecutive dividend rises for at least 50 years, according to the Association of Investment Companies (AIC).

City of London Investment Trust (a member of the Moneywise First 50 funds), Bankers Investment Trust and Alliance Trust have all delivered a dividend increase for 51 years straight. Caledonia Investments has done so for 50 years.

With the investment industry celebrating 150 years since the launch of the first investment trust, F&C Investment Trust, the AIC is highlighting those which have increased their dividends consistently over time.

The AIC found that 21 investment trusts have delivered consecutive annual dividend increases for at least the past 20 years. Investors interested in a consistent increasing dividend income should look at these investment trusts, though some deliver higher yields than others, with City of London being one of the few that have a dividend yield over 4%.  

Part of the structure of an investment trust that helps it to deliver income reliability is its ability to hold cash reserves. For example, Scottish American increased its dividend even during the financial crisis. This was down to revenue reserves to buffer the dividend payments, something that open-ended investment companies (oeics) don’t have the luxury of. In times of downturn oeics are forced to use cash reserves to maintain liquidity as investors sell up.

Investment trusts, however, are closed-ended, meaning the investor is buying a stake in the company, not providing it directly with cash. This gives the manager much greater control over what happens to the trust’s cash reserves.

So far in 2018 eight companies have announced another consecutive year of dividend increases, including Alliance Trust, F&C Investment Trust, Brunner Investment Trust, JPMorgan Claverhouse, Witan Investment Trust (another First 50 Fund), Scottish American and Temple Bar.

See the full list of ‘dividend heroes’ in the table below:

CompanySectorNumber of consecutive years dividend increasedDividend yield as at 28/02/18 (%)
City of London Investment TrustUK Equity Income514.2
Bankers Investment TrustGlobal512.2
Alliance TrustGlobal511.9
Caledonia InvestmentsGlobal502.0
F&C Global Smaller CompaniesGlobal471.0
Foreign & Colonial Investment TrustGlobal471.6
Brunner Investment TrustGlobal462.2
JPMorgan Claverhouse Investment TrustUK Equity Income453.6
Murray IncomeUK Equity Income444.3
Witan Investment TrustGlobal432.1
Scottish AmericanGlobal Equity Income383.0
Merchants TrustUK Equity Income355.2
Scottish Mortgage Investment TrustGlobal350.7
Scottish Investment TrustGlobal342.4
Temple BarUK Equity Income343.4
Value & IncomeUK Equity Income304.3
F&C Capital & IncomeUK Equity Income243.4
British & AmericanUK Equity Income2214.7
Schroder Income GrowthUK Equity Income224.1
Northern Investors Company*Private Equity2113.4
Invesco Income GrowthUK Equity Income204.1

Source: AIC, March 2018. *Please note Northern Investors Company is winding up

Annabel Brodie-Smith, communications director of the AIC comments: “We now have four dividend hero investment companies with more than half a century of dividend increases, an enviable achievement. There are 21 dividend hero investment companies in total which have increased their dividends each year for at least 20 years or longer.

“Investment companies have an important structural advantage, namely, they can squirrel away up to 15% of the income they receive each year to boost their dividends in tougher times. Whilst markets have seen volatility since the start of the year, interest rates remain historically low and income is very much in demand, with many investors relying on regular dividends for everyday spending and bills.”

How investment trusts have remained relevant over 150 years

Paul Niven, fund manager of Foreign & Colonial Investment Trust, explains how his company has managed to exist and thrive over such a long period of time: “The Trust was established 150 years ago with the purpose of bringing the advantages of a pooled approach to investing to the investor of ‘moderate means’ and its objective is as true today as it was on the first day it was founded. The key to the Trust’s success, having paid a dividend to shareholders in every year of its history and having increased dividends for 47 consecutive years, is that it has never stood still. It has continued to successfully evolve to ensure it remains relevant for investors of today.”

“The development of Foreign & Colonial Investment Trust was truly innovative and has helped shape the investment industry today. Since its launch the closed-ended funds universe has grown substantially, with investment trusts now recognised as an ideal structure for those looking to make long-term investments.

“Our recent move towards a more global focus represents another significant evolution for the Trust. Diversification remains an important aspect of our approach and the Trust continues to be a core growth holding for many shareholders. A diversified approach with investments in listed equities and unlisted private equity across different geographies, sectors and styles means that we are well placed to continue to deliver on our dual objectives of growth in both capital and income over the longer term.

“Looking ahead, interest rate rises and potentially higher bond yields may create some challenges for risk appetite in 2018. However, inflation, while expected to rise, should remain relatively benign. We anticipate that it will prove another positive year for equities, which are unlikely to have reached peak prices just yet.”

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