Alliance eyes ‘attractive’ dividend; bins coal, tar sand

Alliance Trust plc, the £3.3 billion Dundee investment trust company which uses external fund managers Willis Towers Watson (WTW), said on Friday it is “reviewing the level of the company’s dividend to assess if and how a more attractive and sustainable level of distributions may be provided to shareholders in the future.”

Alliance Trust said on July 8 that a court approved the conversion of its £645.3 million merger reserve into a distributable reserve.

On Friday, announcing results for six months ended June 30, 2021, Alliance Trust said it will exclude stocks with significant exposure to thermal coal and tar sands from its portfolio.

For the six months, the company’s Net Asset Value (NAV) Total Return was 14.8% — outperforming its benchmark, the MSCI All Country World Index (MSCI ACWI) which returned 11.1%

The company’s Total Shareholder Return (TSR) of 11.1% “reflected a widening of the discount from 3.5% at the start of the year to 6.7% at the end of June.”

Between April 1, 2017, when WTW was appointed investment manager, and June 30, 2021, the company’s NAV Total Return and TSR were 58.4% and 56.6% respectively, against 57.2% for the benchmark.

A second quarterly dividend of 3.702p, an increase of 3% on last year, will be paid in September and the board expects to extend the company’s 54-year track record of increasing ordinary dividends.

The total net assets of Alliance Trust plc rose from £3 billion at the end December last year to £3.3 billion at June 30.

“Stock selection was the key driver of returns over the six months to 30 June 2021,” said the company.

“Key contributors included Alphabet (up 41.6% from 31 December 2020 to 30 June 2021), the largest portfolio holding and greatest contributor to absolute returns.

“It posted better than expected earnings for the first quarter of 2021, with solid revenue growth on the back of impressive results for its search business …”

Alliance Trust plc chairman Gregor Stewart said: “We are pleased to have comfortably outperformed our benchmark index in the first half of 2021.

“With the increasing spread of returns between companies, it is now becoming much more of a stock pickers’ market, which plays to the strengths of our diversified yet high conviction approach to investing.

“We recognise that the company’s delivery of a sustainable, rising income is particularly important to many of its shareholders and are proud that the company has been able to increase its total ordinary dividend for 54 consecutive years.

“With increased dividends expected as a result of the global economy re-opening, and the further flexibility that the conversion of the company’s £645.3m merger reserve provides, the board has started a review of the level and funding of its dividend payments.

“It will examine if and how the company could deliver a more attractive and sustainable level of dividend to shareholders, without changing the investment strategy.

“Although excluding stocks with significant exposure to thermal coal and tar sands will not result in significant divestments, it reinforces our ambition to have the portfolio managed to achieve net zero greenhouse emissions by 2050 or earlier.

“The portfolio’s carbon footprint is already 32.8% lower than the benchmark and this decision helps to keep us on the right track.”

Further explaining the dividend review, Alliance Trust said: “The board is proud that the company has been able to increase its total ordinary dividend for 54 consecutive years.

“It remains committed to the company’s dividend policy and expects to build on that track record.

“The board is also aware that dividend income is important to many of its shareholders and now wishes to assess if and how a more attractive and sustainable level of distributions may be provided to shareholders in the future.

“With the global economy re-opening, we expect income from the portfolio to increase over time, following the sharp decline experienced during the pandemic.

“In addition, the board is delighted to have been granted court approval for the conversion of the company’s merger reserve into a distributable reserve.

“This provides the company with increased flexibility in the way it can fund dividend payments, boosting the company’s already significant distributable reserves and dividend cover.

“In light of these developments, the board has started a review of the level and funding of the company’s dividend payments and would welcome the views of shareholders.

“The board will examine if and how the company could deliver a more attractive and sustainable level of dividend to shareholders, without changing the company’s investment strategy.

“We will report back to shareholders on the results of this exercise by the end of October.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.