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.

If you could design the ideal income-paying investment it would have an attractive yield and a consistent long-term record of raising its dividends. There are very few options like this on the market, which is why the City of London trust really stands out from its peers. It's also one of our best sellers.

It is hard to believe, but City has managed to increase its distributions every year since 1966, giving it pride of place in the Association of Investment Companies’ list of dividend heroes. There are twenty of them in total, although it is one of only five UK equity income trusts that is yielding 5% or more.1

Rising income stream

The beauty of investing in a portfolio of dividend-paying stocks is that if the companies do well they should be able to improve their distributions over time. Anyone who purchased 1,000 shares in City of London in 2013 would have received income that year of around £145, a figure that would have risen to just over £200 by 2023.2

There is obviously no guarantee that this sort of growth will be repeated, but the resilience of trusts like City over such a long period of time should give investors a degree of comfort. This is especially the case given that it has successfully maintained its record through a number of major market setbacks including the dot com crash, the global financial crisis and the pandemic.

Revenue reserves

Investment trusts don’t have to pay out all the income they receive from their portfolios each year. Instead they can set aside up to 15% in a revenue reserve, which enables them to hold back some of the funds they receive in good years to top up their dividends when the underlying holdings may be cutting back.

City of London has made good use of this facility and has accumulated significant distributable reserves to back up the strong underlying cash flows from its portfolio. This gives the Board confidence that it will be able to increase the total annual dividend for the 58th year in a row.

Portfolio and outlook

Longstanding manager Job Curtis, who has been in place since 1991, has put together a diversified portfolio of 84 holdings. The vast majority of the £2bn of assets are invested in the UK (83.5%), although he has taken advantage of the flexible mandate to commit the rest to various other developed markets.3

City of London Investment Trust - top 10 holdings

  1. BAE Systems
  2. RELX
  3. Shell
  4. HSBC
  5. Unilever
  6. British American Tobacco
  7. AstraZeneca
  8. 3i Group
  9. Diageo
  10. BP

Source: Fidelity International, 31.3.24 

Curtis says that two-thirds of revenues earned by companies that they are invested in come from overseas, which provides useful diversification, but there is also considerable uncertainty for the global economy and elevated geopolitical tensions.

“Nonetheless, we think the valuation of UK equities looks compelling compared to their equivalents overseas, possibly due to the low allocation from domestic, institutional investors. In particular, the dividend yield of UK equities is attractive relative to the main alternatives.”

Performance and dividends

City of London aims to provide long-term growth in income and capital. Over the last 10 years it has generated an NAV total return of 68%, which is 5% ahead of the FTSE All-Share benchmark.4 Please remember past performance is not a reliable indicator of future returns.

The trust has declared two quarterly dividends of 5.05 pence each in respect of the current financial year, with the rate due to be reviewed before the third interim payment is announced in April. Based on the current level of distributions the shares offer an attractive yield of 5%, please note this is not guaranteed.

How do the costs stack up?

It is great to see that City of London has reduced its annual management fee from 0.325% to 0.3% effective from 1 January 2024. This should help to reduce the ongoing charges from 0.37% for the 2023 financial year and make the trust even more competitive.

More on City of London

(%) As at 31 March 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024
City of London -17.8 23.4 15.0 4.5 2.9

Past performance is not a reliable indicator of future returns

Source: Morningstar, share price total returns from 31.3.19 to 31.3.24. Excludes initial charge. 


AIC, 12.4.24
Janus Henderson Investors, 12.4.24
3,4 Janus Henderson Investors, data to 29.2.24

Important information- investors should note that the views expressed may no longer be current and may have already been acted upon. 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. Shares in the trust are listed on the London Stock Exchange and their price is affected by supply and demand. The trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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