Dividend Heroes increase payouts since Rolling Stones released Ruby Tuesday: SIMON LAMBERT on real long-term investors
In 1967, the Rolling Stones released Ruby Tuesday, Elvis and Priscilla Presley got married and the Beatles’ Sgt Pepper’s Lonely Hearts Club Band took over the UK turntables.
In a slightly less eye-catching move, three investment trusts also embarked on an illustrious 56-year career of collecting dividends.
The trio, City of London, Bankers and Alliance Trust sit atop the Dividend Heroes table compiled by investment trust body AIC.
This list celebrates the investment trusts with the longest unbroken history of increasing dividend payouts for investors year after year.
Goodbye, Ruby Tuesday and hello 56-year-old dividend record: Three investment funds have increased their payouts since the Rolling Stones released their 1967 hit single
To make the cut, trusts must accrue at least 20 consecutive years of steadily increasing dividends.
There are 18 investment trusts that have handled this and they are an interesting group.
But before digging into the list, special mention should be made of the eight dividend heroes who have managed at least 50 years to increase payouts.
These are the three trusts named above, plus Caledonia Investments, the Global Smaller Companies Trust, F&C, Brunner and JP Morgan Claverhouse.
This is an amazing achievement and a timely reminder of why long-term investing can pay off.
|investment company||AIC sector||Increase in the dividend of the number of consecutive years||Dividend yield (%)||5-year annualized dividend growth rate (%)|
|City of London||UK Equity Income||56||4.65||3.25|
|Investments Caledonia||Flexible investment||55||1.82||3.64|
|The Global Smaller Companies Trust||Global Small Businesses||52||1.21||8.48|
|F&C Investment Trust||Global||51||1.4||5.38|
|JPMorgan Claverhouse||UK Equity Income||50||4.71||4.88|
|Murray’s Income||UK Equity Income||49||4.15||1.91|
|Scottish American||Global Equity Income||49||2.69||4.48|
|Merchant Trust||UK Equity Income||40||4.57||2.44|
|Indexed property value and income||Real Estate United Kingdom Commercial||35||5.81||2.75|
|CT UK Capital & Income||UK Equity Income||29||3.73||1.99|
|Schroder revenue growth||UK Equity Income||27||4.16||3.34|
|abrdn Equity Income||UK Equity Income||22||6.4||5.83|
|Athelney Trust||UK small businesses||20||4.68||1.53|
|Source: AIC and Morningstar. Investment trusts with 20 years of increasing dividend payouts. Data as of 03/03/2023|
Current dividend yields on this band of eight range from just 1.4% with F&C to 4.71% with JP Morgan Claverhouse.
But if you had bought one of these trusts midway through its dividend-collecting history, you’d be sitting on your own much larger yield.
It works by comparing the pence dividend payment you get now with the price you paid for a share back then.
F&C, for example, only yields 1.4% with a current price of 966p, but 25 years ago a share would have cost you 192p.
An F&C investor who bought a stock at the time would earn a 7% return based on current payments compared to the price he paid.
It won’t make them as rich as Mick Jagger, but it’s a nice icing on the cake after a quintuple rise in the stock price.
And if they have reinvested and compounded those dividends, they will indeed have done very well with their initial investment.
So what else is on the Dividend Heroes list? Not necessarily what many would expect if they thought it was likely to be filled with income investing.
In fact, while UK equity income trusts make up a large part of the list, with the biggest yield currently Abrdn Equity Income at 6.4%, there is also a significant share made up of global trusts, including the big growth investment gun.
Scottish Mortgage is an unlikely dividend hero, but it has increased payouts for 40 consecutive years. It yields a paltry 0.5% but has managed to achieve an average dividend growth rate of 3.66% over five years.
It’s certainly not for income seekers, but even after its recent struggles, Scottish Mortgage has returned 56% over five years and 350% over ten years. Long-term investors have been rewarded.
The key to investment trusts being able to achieve such long record payout increases is in their structure, they are allowed to withhold some dividends in good years to help cover bad ones.
It’s a feature that investment funds don’t have and while it’s not a reason to always choose a trust over a fund, it’s a strength worth considering.
And it’s worth noting that some of these UK equity income-focused Dividend Heroes might be in a good position to continue to shine. In the new world of higher interest rates, investors have turned away from the expensive growth stocks of tomorrow and towards companies proving they can make a profit now.
The portfolios of some of these trusts offer a simple and diversified way to play on this investment theme and the renewed interest in the UK stock market.
But remember, as always, do your own research and don’t put all your eggs in one basket, even if it belongs to a hero.