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City of London declares 50 years of dividend growth
England won the World Cup in the year City of London investment trust started its unbroken half century run of dividend increases.
by Gavin Lumsden on Mar 29, 2016 at 12:58
City of London (CTY ) has become the first investment trust ever to achieve 50 years of consecutive dividend increases.
The £1.2 billion UK equity income fund, managed by Job Curtis of Henderson Global Investors, has declared the total dividend for the year to 30 June 2016 will be 15.9p per share, up 3.9% on the previous year, and marking the 50th time in succession it has increased the shareholder pay-out.
Shareholders registered with the company on 29 April will receive a third interim dividend of 4.05p per shares on 31 May followed by a fourth and final dividend of the same amount on 31 August for shareholders registered on 29 July.
Philip Remnant, the trust’s chairman, said: ‘I am delighted that City of London has reached this momentous milestone which demonstrates the strength of our long-standing conservative investment approach.’
When the City of London began its record dividend growth streak in 1966 , James Callaghan, the then Labour chancellor of the Exchequer, had just announced the decision to decimalise the pound and replace the old system of shillings and pence.
John Lennon of the Beatles had controversially boasted that the band were ‘more popular than Jesus now’.
And England’s football team, captained by Bobby Moore (pictured right), were months away from beating West Germany in the World Cup Final in London, the only time the country has lifted the trophy.
The steady increases in City of London’s dividend were made against a background of stock market and economic turbulence in the past half a century. The trust upped its annual payments to shareholders throughout the ‘lost decade’ of the 1970s, the Black Monday of 1987, the dot-com bubble of 2000 and the global financial crisis in 2008.
In doing so City of London has become one of the best performing trusts in the UK Equity Income sector, outpacing rivals such as JPMorgan Claverhouse (JCH ) and Merchants (MRCH ) which also have established long dividend track records and relatively high yields (see table below).
Someone who bought £100 of City of London shares a decade ago and reinvested the dividends in more of its shares could have more than doubled their money, according to Morningstar data on the Association of Investment Companies (AIC) website.
According to the figures, a £100 investment on 24 March 2006 would be worth more than £205 today, placing it sixth out of 26 trusts in the UK Equity Income sector where the average total return would have turned the sum into £199.70. Funds in this category aim to invest in good dividend paying companies and to deliver an annual yield above the FTSE All Share index. The performance figures include the investment trusts’ charges but exclude any stock broking fees.
Curtis (pictured above) is on the verge of a personal landmark too, having run the fund for nearly a quarter of a century.
Although the trust has had a difficult 12 months as markets have reeled at the slowdown in China and big companies have begun to cut dividends in response to falling profits, Curtis has expressed confidence in the ability of HSBC Holdings (HSBA), Royal Dutch Shell (RDSb), BP (BP) and possibly GlaxoSmithKline (GSK) to maintain shareholder pay-outs.
City of London is the first of the AIC’s ‘dividend heres’ to achieve the landmark of 50 annual dividend increases but others are close behind.
Global investment trusts Bankers (BNKR ), which is also managed by Henderson, and Alliance Trust (ATST ), recently declared their 49th years of increasing dividends while Caledonia Investments (CLDN ) is snapping at their heels with 48 consecutive dividend increases (see table).
The following investment trusts have consistently grown their dividends for over 20 years. The table shows their total returns for shareholders over 10 years and their current dividend yields. For comparison, the FTSE All Share index has generated a 57% total return in the past decade and currently yields 3.8%.
|Investment trust||Sector||10-year total shareholder return||Dividend yield||No. consecutive years dividend increased|
|City of London (CTY)||UK Equity Income||105.60%||4.40%||50|
|Alliance Trust (ATST)||Global||72.30%||2.20%||49|
|Caledonia Investments (CLDN)||Global||41.70%||2.30%||48|
|F&C Global Smaller Companies (FCS)||Global||156.30%||1%||45|
|Foreign & Colonial (FRCL)||Global||99.10%||2.20%||45|
|JPMorgan Claverhouse (JCH)||UK Equity Income||56.50%||3.90%||43|
|Murray Income (MUT)||UK Equity Income||50.80%||5%||42|
|Scottish American (SCAM)||Global Equity Income||62.20%||4.20%||36|
|Merchants (MRCH)||UK Equity Income||44.40%||6.10%||33|
|Scottish Mortgage (SMT)||Global||194.10%||1.20%||32|
|Temple Bar (TMPL)||UK Equity Income||80.30%||4%||32|
|Value & Income (VIN)||UK Equity Income||48.90%||4%||28|
|F&C Capital & Income (FCI)||UK Equity Income||57.30%||4%||22|
|British & American (BAF)||UK Equity Income||53.40%||9.40%||28|
|Schroder Income Growth (SCF)||UK Equity Income||75.60%||4.40%||22|
Source: Association of Investment Companies, Morningstar Inc
Investment trusts have been able to achieve these impressive dividend records because, unlike unit trusts and open-ended investment companies, they do not have to pay out all their investment income each year. Instead they can hold back some money and create revenue reserves with which to top up their dividends when times are tough.
Analysis by the AIC shows how the focus on dividends has generated powerful returns for income seekers over the past 20 years. A £100,000 investment made on 31 December 1995 in an average UK Equity Income investment company would have generated over £124,500 in dividends by the end of last year, with the dividend rising from £3,826 in the first year to nearly £9,000 in 2015.
That’s an annual dividend increase of 4.6%, which beats the average 2.8% rate of inflation over the period.
In addition to taking all those dividends, the average UK Equity Income shareholder more than doubled their capital as well, with their share prices rising by 116% over the two decades.
Annabel Brodie-Smith of the AIC said: ‘These figures make a compelling reason for investors to consider investment companies as part of a well-balanced retirement portfolio whether that’s in a Sipp (self-invested pension) or an ISA (individual savings account).’
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- City of London (Ordinary Share)
- Bankers (Ordinary Share)
- Alliance Trust (Ordinary Share)
- Caledonia Investments (Ordinary Share)
- F&C Global Smaller Companies (Ordinary Share)
- Foreign & Colonial Investment Trust (Ordinary Share)
- Brunner (Ordinary Share)
- JPMorgan Claverhouse (Ordinary Share)
- Murray Income Trust (Ordinary Share)
- Witan (Ordinary Share)
- Scottish American (Ordinary Share)
- Merchants Trust (Ordinary Share)
- Scottish Investment Trust (Ordinary Share)
- Scottish Mortgage (Ordinary Share)
- Temple Bar (Ordinary Share)
- Value & Income (Ordinary Share)
- F&C Capital & Income (Ordinary Share)
- British & American (Ordinary Share)
- Schroder Income Growth (Ordinary Share)
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