Inv trust divis slip but still beat market ‘by mile’

Investment trust dividends slipped for the first time in a decade in the first half of 2021 — but have still outperformed the wider market “by a mile” through the pandemic, according to the latest Investment Trust Dividend Snapshot from Link Group.

Between January and June 2021, investment trust dividends fell 3.1% to £891.9 million — £29 million less than in the first six months of 2020.

But Link said investment trusts have still easily outperformed the dividends of the wider UK plc market since the pandemic began – up 2% compared to 34.6% fall for UK plc dividends.

“This was the first decline since the second half of 2010, when dividend cuts that followed the GFC (global financial crisis) filtered through to investment trusts, but it was compared against a record H1 2020,” said Link Group.

“In the wider UK stock market, by contrast, first-half 2021 dividends (excluding one-off specials) rose by 8.0% thanks to a favourable comparison to the cuts that began in 2020.

“Investment trust dividends always lag behind the wider market because they are paid from dividends distributed by companies held in the trusts.”

Link Group expects full year investment trust dividends to drop 3.2% to £1.79 billion.

Ian Stokes, Managing Director, Corporate Markets EMEA at Link Group said: “Investment trust dividends cannot defy gravity, but they do come with a very plump cushion.

“Not only do they keep cash in reserve, but they can also bank some of the big capital gains they have made over the last year and hand these out to shareholders too.

“It is one of the most reassuring features of investment trusts that they can smooth out the peaks and troughs in dividend income caused by the economic cycle or big one-off shocks.

“The amazing stability of investment trust dividends through the pandemic is a testament to this flexibility.

“For investors, this regular, predictable income is very welcome indeed.”

Ian Sayers, chief executive of the Association of Investment Companies (AIC), said: “For the full year 2020, more than four-fifths (85 per cent) of equity income-paying investment companies increased or maintained their dividends to shareholders despite the impact of the pandemic.

“In contrast, less than a quarter (23 per cent) of equity income-paying open-ended funds increased their dividends in 2020 and none held dividends at the same level as 2019.

“As Link’s investment trust dividend snapshot highlights, investment companies have important income benefits.

“Investment companies can hold back dividends from investee companies in a revenue reserve and distribute these dividends to shareholders in tough times such as the pandemic.”

The AIC represents the interests of the UK’s investment trust industry, much of which is run from Scotland.

The AIC has 362 members and the industry has assets of around £257 billion.