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JEFF PRESTRIDGE: Law Debenture is big beast of investment jungle

Income: Law Debenture's James Henderson spoke to Wealth of Kenya

Publicly traded investment firm Law Debenture is a strange beast. It is part of a conventional investment portfolio and a legal business owned by the trust.

While such a combination is unlikely to take off today as an investment entity, it does work as evidenced by the fact that it has lasted – very kindly thank you – for over 133 years.

Change is simply not an option. Investments – managed by James Henderson and Laura Foll at Janus Henderson – and the Independent Professional Services (IPS) legal business are good for each other. Above all, it works for the shareholders of the trust.

A few days ago the £1billion trust announced its 2022 financial results. Although a year only provides a snapshot, it was a satisfying set of figures.

Although the total shareholder return was meager at 0.4%, it generated revenue in spades. During the year it paid dividends totaling 30.5 pence per share, an increase of 5.2% on the previous year.

Income: Law Debenture's James Henderson spoke to Wealth of Kenya

Income: Law Debenture’s James Henderson spoke to Wealth of Kenya

This means the trust has had 13 years of annual dividend growth – and 44 years of maintaining or increasing dividends.

All rather impressive, although the longer-term numbers look better. Over the past five years, the trust has generated a total shareholder return of 82%.

To put that into perspective, the FTSE All-Share Index has returned 31% over the same period.

The impact of the IPS on the performance of the trust cannot be underestimated. Much of the income generated by the trust last year – 30% – came from IPS, a company that has its fingers in many pies.

It makes a profit from providing corporate secretarial services to large companies (in effect, making sure companies do everything right); acting as both a corporate bond and pension fund trustee; and providing corporate whistleblower services, allowing employees to report company wrongdoing confidentially.

It’s a business mix that has generated revenue growth through thick and thin (Covid, inflation and Liz Truss).

Representing one-fifth of the trust’s assets, it provides a solid foundation around which Henderson and Foll can build a complementary investment portfolio.

This portfolio comprises 145 stocks, most of which are listed in the UK. It includes the usual dividend-producing suspects – like BP and Shell and the banks Barclays, HSBC, Lloyds and NatWest – but much more.

Henderson, telling me about Kenya where he was busy enjoying encounters with elephants rather than his usual fare of FTSE 100 chief executives, defends the diversified portfolio on the basis of risk mitigation.

“If a company I own cuts its dividend,” he told me, “that’s not a problem. For example, when BP cut its dividend in 2020, it didn’t have a impact on the income that Law Debenture may have paid out to investors.

“In effect, the trust has increased its dividend by 5.8 percent.” The rich income that IPS provides to the trust also allows Henderson to invest in companies in anticipation of paying a dividend – for example, banks in 2020.

It also allows him to invest a tiny portion of the portfolio in smaller companies that don’t generate any income, such as renewable energy company Ceres Power and oil and gas exploration company Deltic Energy.

Although both companies are currently loss-making and have yet to pay dividends, Henderson is confident they will prove to be sound investments, even if they are taken over by rivals.

Last week, I asked Denis Jackson, managing director of Law Debenture, if the trust would ever sell IPS, which could generate a windfall for shareholders. He said it was forbidden. His view is that it’s a marriage made in heaven that has worked for 133 years – and he sees no reason why it couldn’t work for another 133 years.

Offering an annual income of around 3.6%, as well as the prospect of capital gains, Law Debenture represents a good entry point for investors wishing to gain exposure to the UK stock market.

A little offbeat, yes. But potentially rewarding over a five-year horizon. In terms of investment, more of a Kenyan elephant (strong and reliable) than a tiger (volatile).

From now on, banks are razing services

Banks may be awash with dividends, but they are quickly depleting their branch arsenal. A total of 722 have been closed – or have been on notice of imminent closure – since the start of last year and many more are sure to go before the end of the year.

Of the remaining branches, many of their services are being compromised by their reduced hours of operation. More worryingly, access to over-the-counter services (for example, to pay by check or make a cash withdrawal) is restricted, forcing customers to use an ATM, payment machine or go online.

Walking down Kensington High Street in London a few days ago, I was drawn to a sign on the window of the Barclays branch alerting passers-by to changes to come from the end of June. These will result in the removal of half an hour from the agency’s opening hours, every day from Monday to Saturday afternoon. In addition, counter services will not be available on Saturdays and will be removed Monday through Friday two and a half full hours before the branch closes at 4:30 p.m.

“Our hours of operation are temporarily changing,” the store says. It then says: “Even when your branch is closed, your bank is still open – you can do most of your banking on the Barclays app.”

I would bet my pension on these temporary changes that would never be reversed. I also wouldn’t be surprised if the next step was to either close the branch or make it cashless.

Heathrow fraudsters are back with the M&S scam

Last month fraudsters used Heathrow’s good reputation to try to persuade people to take up sustainability bonds, allegedly paying higher fixed interest rates (up to 7.125%). We notified the airport owners, who alerted their cyber fraud team.

Scam: Fraudsters use Marks & Spencer name to offer sustainability bonds to M&S

Scam: Fraudsters use Marks & Spencer name to offer sustainability bonds to M&S

But these fraudsters are determined people. They’re back, this time using the Marks & Spencer name to offer M&S sustainability bonds paying – yes, you guessed it – 7.125%.

Marks & Spencer has been notified. If you receive the M&S offer, let me know and delete it.

Clarity on equity is welcome

The stock release market has come a long way since the early 1990s, when some customers got horrible offers from plan providers.

Aided by an influx of well-known financial brands into the sector – such as Aviva, Legal & General and construction company Nationwide – the equity release is now a product fit for purpose.

In its simplest terms, it allows homeowners to release some of the equity trapped in their property for everyday living. Equity, taken all at once or in installments, is accessible through a fixed-rate loan, with interest usually accrued rather than paid monthly. The debt is paid off by the sale of the home when the owner dies or goes into long-term care.

Last year, 50,000 new plans were taken up, with the total amount lent reaching an annual record of £6.2billion.

Yet freeing up capital remains expensive and can be difficult for many people (owners and their adult children) to make up their minds.

The Equity Release Council, the industry trade association, recognizes these issues. That’s why he now wants companies to set their pricing in a way that it’s easy to understand (standardized and jargon-free) – and can be compared between providers.

I hope lenders will respond positively to this initiative. After all, it’s in their interest, as well as that of their customers. Opacity breeds mistrust while transparency breeds trust.

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