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Paying dividends: Is monthly income the future of yield funds?
by Robert St George on Oct 02, 2013 at 11:57
The £390 million Utilico investment trust revealed last week that it would increase the frequency of its dividend payments, moving from bi-annual to quarterly distributions.
It’s perfectly possible to interpret that cynically, given that Utilico has lost 7% over the past year. That was primarily attributable to an investment in an Australian gold miner, which has cost the fund almost £60 million, but Utilico still boasted record revenues of £16 million in its most recent financial year, ending 30 June.
This gave the trust’s board the confidence to pay out more regularly.
‘The board is aware of the increasing emphasis investors are placing on dividend income,’ notes its chairman, Roger Urwin.
Paul Locke, an analyst at Westhouse Securities, welcomed the move. ‘This is significant and should be supportive of the fund’s rating given the emphasis on income in the trust universe at this stage in the cycle,’ he believes.
Setting scepticism about motives to one side, it’s equally probable that this is part of a wider trend towards the payment of dividends by funds at closer intervals.
‘Half yearly really isn’t enough,’ says David Hambidge, director of multi-asset at Premier. Indeed, many are now going beyond even quarterly cheques.
Premier relaunched its Multi-Asset High Income fund, offering quarterly payments, as Multi-Asset Monthly Income late in 2012. Earlier this year the Old Mutual Dynamic Bond fund similarly became the Old Mutual Monthly Income Bond fund.
Demand for the latter has proved strong. Since confirming the change the fund has grown by 30%, albeit from a small base, to more than £40 million. Assets in the Premier fund have also swelled by 25% since its announcement, reaching £175 million in size.
Hambidge, however, thinks more is to come. He explained: ‘We didn’t set it up for current demand. We set it up for the expected demand. The majority of investment assets now are going to be owned by retirees, and these clients want to be paid monthly just like anyone else is paid monthly. We really are entering the decumulation phase.’
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