Interactive Investor

Top 20 investment trust dividend growers named

8th February 2018 11:43

Andrew Pitts from interactive investor

Income-seekers who want some reassurance that dividends paid by investment trusts can grow – or at least be maintained – can get some valuable information from assessing the dividend growth statistics on the following pages.

These statistics, which show annualised dividend growth over one, three and seven years, may reveal how successful a trust has been with its income policy. But they also need to be viewed with caution.

For example, a one-year dividend growth figure of 0% does not necessarily mean the trust has failed to raise its dividend; it is most likely because the final dividend has not yet been declared and therefore the full year increase or decrease cannot be calculated. Also, a large one-year increase can flatter the annualised figures over longer periods.

That is the case with JPMorgan Global Growth & Income, which recently changed its policy to pay out 4% of its net asset value as dividends (from capital when required) – a move that has resulted in an annual dividend increase of 84% in the most recent year.

The longer-term numbers may also hide a period when dividends were either cut or not paid at all. However, most established trusts with a clear dividend-paying policy have income reserves to help them at least maintain dividends when times are hard.

The table, below, shows trusts with a market capitalisation of at least £50 million and a current yield of at least 3%, which are then ranked by the highest annualised dividend growth over seven years. As the table shows, the seven-year dividend growers are a mixed bunch.

Topping the table are two private equity specialists, while Asian and emerging markets trusts also feature. Along with the aforementioned JPMorgan Global Growth & Income, this illustrates the increasing trend for growth oriented trusts to crystallise some of their capital returns in the form of dividends.

Only time will tell how capital-only returns from such trusts that pay income from capital might be impacted in a long bear market, which investors haven't experienced for nearly a decade. However, the capital-only return figures we show over one, three and seven years can also provide some valuable insight in this respect.

Among the table's constituents, only a handful of trusts are 'natural' income oriented funds. These are (in descending order) Real Estate Credit Investments, Invesco Perpetual Select Global Equity Income, Henderson Diversified Income, Lowland and Perpetual Income & Growth.

In all instances, investors are advised to check each trust's annual report and accounts for further clarification on its dividend policy. The Association of Investment Companies provides links to these documents on its website.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.