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The trusts with 20 years of rising dividends

Ed Monk

Ed Monk - Fidelity Personal Investing

Many investment trusts can boast long, unbroken records of raising dividends.

Those with the longest track records have been dubbed “dividend heroes” by the Association of Investment Companies (AIC), the trade body for investment trusts, which every year publishes a list of the dividend hero trusts which have paid a rising dividend for 20 or more consecutive years.

The trusts with 20 years of rising dividends

The latest list was published last week and showed that there are currently 21 that qualify, having paid at least two decades of rising dividends. The longest-records, however, are significantly longer than that.

Top of the list are three trusts which each have 51 years of consecutively rising dividends - City of London, Bankers and Alliance Trust. To put that into perspective, the last time the dividends for these trusts failed to rise was in 1966, the year England last won the World Cup.

The trusts on the list invest either globally or are focused on the UK. The yields they currently offer reflect the income available in these respective investing universes - and those centred on the UK tend to have a higher current dividend yield. City of London, for example, offer a potential 4.2% dividend yield right now. 

Investment trusts: income specialists

Dividend hero trusts have become favourites with income investors. Like ordinary funds that invest for income they look for higher yielding company shares, but the way investment trusts are structured gives them an even greater ability to ride out stock market ups and downs.

Investment trusts do not work in the same way as funds that many investors may be more familiar with. It is always important to understand how an investment works, so those unsure should tread carefully.

Like funds, investment trusts allow you to spread your money between selected companies but investment trusts are themselves companies – you buy shares in them. The value of your investment is dictated by the trust’s share price. Over time, the price should reflect the performance of the underlying companies the trust buys, but in the short term it can rise and fall with the whims of the market. That can make investment trusts more volatile.

There are other differences too. When investors wish to leave a fund, the manager needs to give them their money back by selling assets. This can be costly and lock in losses. Investors leaving an investment trust, on the other hand, simply sell their shares. Net selling will depress the share price but it does not affect the assets underneath.

In terms of producing reliable income, there is another important difference between funds and trusts. The ability of trusts to hold back up to 15% of the cash they generate every year means they can build large reserves to help cope when the income from companies they invest in falls away.

The trusts with the longest histories have had the greatest opportunity to build their reserves and the managers of these have placed a great importance on smoothing shareholder pay-outs in order to maintain their record of rising dividends.

It can make these trusts an attractive option to anyone who needs income over a long timeline, including those who need investment income in retirement. Bear in mind that a rising cash dividend is not the same as a dividend that rises enough to beat inflation, and that no dividend is guaranteed and must be covered by earnings in the long term to remain sustainable.

Below are the top ten Dividend Hero trusts.

Company AIC sector No. of consecutive years of dividend increase Dividend yield as at 28 Feb (%)
City of London Investment Trust UK Equity Income 51 4.2
Bankers Investment Trust Global 51 2.2
Alliance Trust Global 51 1.9
Caledonia Investments Global 50 2.0
F&C Global Smaller Companies Global 47 1.0
Foreign & Colonial Investment Trust Global 47 1.6
Brunner Investment Trust Global 46 2.2
JP Morgan Claverhouse Investment Trust UK Equity Income 45 3.6
Murray Income UK Equity Income 44 4.3
Witan Investment Trust Global 43 2.1

Source: AIC, March 2019

Past performance is not a reliable indicator of future returns. Dividend yields are not guaranteed.

Find out more about investment trusts

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.