– 94% of dividend heroes beat inflation
– 92% of the next generation of dividend heroes beat inflation
– 82% of UK Equity Income sector beat inflation
Dividend hero investment companies have grown their dividends to shareholders well ahead of inflation over the past five years, according to new data from the Association of Investment Companies (AIC).
17 of the 18 dividend heroes (94%) have delivered compound annual dividend growth ahead of the UK Consumer Prices Index (CPI) over five years.1 The AIC dividend heroes are investment companies which have increased their dividends for 20 or more years in a row.
Income growth is similarly strong in the next generation of dividend heroes, investment companies which have grown dividends for ten or more consecutive years but fewer than 20. 22 of 24 (92%) investment companies in the next generation of heroes have delivered five-year dividend growth ahead of the CPI.
In the investment company equity income sectors, 100% of Asia Pacific Equity Income, 86% of Global Equity Income and 82% of UK Equity Income investment companies beat inflation.2
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Inflation hasn’t been at the top of investors’ worry list for a long time. But with economies reopening quickly from the pandemic and a perception that central banks may be softening on keeping prices in check, it’s easy to see why investors are becoming more concerned. Investment companies’ ability to hold back up to 15% of their income each year in a revenue reserve gives them a huge advantage in delivering inflation-busting income to investors. This means they often have dividends to draw on in years where income would otherwise have fallen short, something investors were thankful for during the pandemic last year.”
Manager comments from the dividend heroes and next generation of dividend heroes
Bruce Stout, Investment Manager of Murray International Trust, said: “Inflation is the silent assassin of wealth. Whilst sharp equity market declines and violent bouts of evaporating investor confidence may grab the news headlines and be recognised as instantaneous perpetrators of capital loss, the covert decay of spending power through prices rising faster than incomes seldom attracts much attention. And why should it? For the current investment generation brought up on a diet of debt, deflation and digital disruption, inflation arguably remains an alien concept. Confined to the history books alongside the dodo, mammoth and other extinct species, such belief not only appeared logical but also essential. How else could the current extended valuations of so-called growth assets, that thrive in deflationary circumstances, be justified?
“Yet contrary to expectations and inherent prejudice, global inflation appears to be alive and well. As the world emerges from the global COVID pandemic, failure of global supply chains to keep up with extraordinary pent-up demand has fanned the flames of inflation once again. For income focused investors, relying on real dividend growth to pay for the rising cost of living, these are increasingly anxious times. Truly globally diversified investment trusts focusing on delivering sustainable income growth from the underlying portfolio of investments offer an increasingly attractive option under such circumstances. Unburdened by geographical confines, sector restraints, asset class constrictions or benchmark obsessions, such trusts can invest anywhere to focus on companies truly committed to increasing dividend payouts and long-term wealth creation for shareholders. By investing wisely and globally, the world is truly becoming the oyster for sustainable real income growth.”
Job Curtis, Fund Manager of The City of London Investment Trust, said: “The City of London Investment Trust aims to be predominantly invested in cash generative companies which can consistently grow their dividends. In addition, the investment trust structure allows for up to 15% of revenue to be retained in the good years for dividends and put into a revenue reserve rather than paid out. The revenue reserve can then be drawn down in the difficult years for dividends allowing an investment trust to continue to maintain or increase its dividend.
“In 2020, the pandemic and lockdown of the economy caused significant disruption to dividends. However, The City of London Investment Trust was able to increase its FY2020 dividend by 2.2%, partly funded from revenue reserves. This was the 8th year out of 29 that City of London has drawn down revenue reserves; during the other 21 years the revenue reserve has been added to. In general though, the outlook for dividends is improving given the reopening of the UK and overseas economies and strong economic growth.”
Will Meadon, Portfolio Manager of JPMorgan Claverhouse Investment Trust, said: “COVID-19 hugely disrupted equity dividend distributions in 2020, and the UK stock market was no exception. That said, many investment trusts continued to show their resilience in distributing income, particularly those with strong dividend reserves.
“Investment trusts are unique because they are not obliged to distribute all their income in the year it is earned. In times of plentiful dividends, they can tuck away up to 15% of their income for tougher times which will, at some stage, inevitably follow. These reserves can then be drawn upon to maintain or even increase dividends when income is scarce. COVID-19 was the ultimate stress test, and many of those investment trusts with strong dividend reserves came into their own.”
Investment company dividend heroes
| Investment company | AIC sector | Number of consecutive years dividend increased | Dividend yield (%) | 5-year annualised dividend growth rate (%) |
| City of London Investment Trust | UK Equity Income | 54 | 4.9 | 4.4 |
| Bankers Investment Trust | Global | 54 | 1.9 | 6.4 |
| Alliance Trust | Global | 54 | 1.5 | 5.6 |
| Caledonia Investments | Flexible Investment | 54 | 2.0 | 3.2 |
| BMO Global Smaller Companies | Global Smaller Companies | 50 | 1.0 | 12.0 |
| F&C Investment Trust | Global | 50 | 1.4 | 4.7 |
| Brunner Investment Trust | Global | 49 | 2.0 | 5.6 |
| JPMorgan Claverhouse Investment Trust | UK Equity Income | 48 | 4.2 | 6.5 |
| Murray Income | UK Equity Income | 47 | 3.8 | 1.4 |
| Scottish American | Global Equity Income | 47 | 2.5 | 2.3 |
| Witan Investment Trust | Global | 46 | 2.3 | 9.9 |
| Merchants Trust | UK Equity Income | 39 | 5.2 | 2.6 |
| Scottish Mortgage Investment Trust | Global | 39 | 0.3 | 2.9 |
| Scottish Investment Trust | Global | 37 | 2.9 | 13.2 |
| Value and Indexed Property Income | Property – UK Commercial | 33 | 5.7 | 6.1 |
| BMO Capital & Income | UK Equity Income | 27 | 3.6 | 2.6 |
| Schroder Income Growth | UK Equity Income | 25 | 4.1 | 4.1 |
| Aberdeen Standard Equity Income | UK Equity Income | 20 | 5.6 | 7.0 |
Source: AIC/Morningstar. Data as at 27 May 2021.
Next generation of investment company dividend heroes
| Investment company | AIC sector | Number of consecutive years dividend increased | Dividend yield (%) | 5-year annualised dividend growth rate (%) |
| Athelney | UK Smaller Companies | 18 | 4.1 | 6.8 |
| BlackRock Smaller Companies | UK Smaller Companies | 17 | 1.7 | 13.7 |
| Henderson Smaller Companies | UK Smaller Companies | 17 | 1.9 | 11.7 |
| Artemis Alpha Trust | UK All Companies | 16 | 1.1 | 7.9 |
| Murray International | Global Equity Income | 16 | 4.5 | 3.2 |
| BlackRock Greater Europe | Europe | 14 | 1.0 | 4.2 |
| Schroder Oriental Income | Asia Pacific Equity Income | 13 | 3.6 | 5.2 |
| Aberdeen Asian Income | Asia Pacific Equity Income | 12 | 4.0 | 1.8 |
| CQS New City High Yield | Debt – Loans and Bonds | 12 | 8.2 | 0.7 |
| Henderson Far East Income | Asia Pacific Equity Income | 12 | 7.2 | 3.7 |
| International Public Partnerships | Infrastructure | 12 | 4.4 | 2.7 |
| Fidelity Special Values | UK All Companies | 11 | 2.0 | 11.6 |
| Invesco Select Global Equity Income | Global Equity Income | 11 | 3.1 | 3.4 |
| Law Debenture Corporation | UK Equity Income | 11 | 3.7 | 11.2 |
| Lowland | UK Equity Income | 11 | 4.3 | 7.9 |
| TR Property | Property Securities | 11 | 3.3 | 11.2 |
| Aberforth Smaller Companies | UK Smaller Companies | 10 | 2.2 | 5.1 |
| Chelverton UK Dividend | UK Equity Income | 10 | 4.4 | 6.1 |
| Dunedin Income Growth | UK Equity Income | 10 | 4.1 | 2.3 |
| Fidelity European | Europe | 10 | 2.2 | 14.3 |
| Henderson Opportunities | UK All Companies | 10 | 1.8 | 8.4 |
| JPMorgan American | North America | 10 | 1.1 | 11.0 |
| JPMorgan Elect Managed Income | UK Equity Income | 10 | 4.5 | 4.3 |
| North American Income | North America | 10 | 3.6 | 8.7 |
Source: AIC/Morningstar. Data as at 27 May 2021.
Full dividend information on each investment company is available on the AIC’s website www.theaic.co.uk. The website shows each investment company’s revenue reserve. This is the income which has been retained by an investment company which can be used to support dividends in more difficult years. The website also shows each investment company’s dividend cover. This shows how many years the current revenue reserve could pay the investment company’s last full financial year of dividends.
The AIC’s website also has Income Finder, a suite of tools and resources to help income-seeking investors research investment companies. Investors can build a virtual portfolio of income-paying investment companies, track dividend dates and see how much income they could have received over a year.
