Investment trusts provided an income sanctuary for investors in 2020, according to a new study. Even as dividends around the world succumbed to the pandemic, investment trusts continued to increase payouts to shareholders, research from the latest Link Dividend Monitor found.
The data shows that investment trust dividends rose 4.2% to £1.88 billion, and even in the teeth of the pandemic (between April and December 2020) more than three quarters of equity focused trusts increased dividends or held them steady compared to Q2 (second quarter) to Q4 2019.
‘Those that did cut dividends only had a minor impact,’ Link researchers said, with payout cuts totalling just £76 million. That was less than 5% of the total paid by the investment trust sector. ‘This is because cuts were either very small at the larger trusts that made reductions, or, where cuts were greater in percentage terms, they tended to be at small trusts,’ the Link report said.
PART OF PORTFOIO KNITTING
‘2020 was a timely reminder of why investment trusts should be a core part of portfolios,’ said James de Sausmarez, director and head of investment trusts at Janus Henderson Investors.
‘Unlike open-ended funds, investment trusts have the ability to save income in a revenue reserve in years of plenty and then dip into it in those rainy day years to at least maintain and often increase the dividend for shareholders,’ de Sausmarez said. ‘2020 was just such a year and the level of dividend increases were influenced by both the size of each company’s revenue reserve and the board’s view of how quickly revenues would recover.’
Last year was the worst on record for UK dividends, according to Link. Its’ report showed that dividends by UK-listed companies fell by an unprecedented 44.1% in 2020 to £61.9 billion. ‘Even if you strip out volatile special dividends, the decline was 38.1%,’ said Link.
‘The resilience of many investment trusts in bull and bear markets is evidenced by City of London Investment Trust (CLIG), whose board stated their confidence that it will be able to increase its dividend for the 55th consecutive year in the recent half year report,’ said Henderson’s de Sausmarez.
City of London’s share price has recovered strongly from 303p pandemic lows to 532p.
