Income investors facing the challenge of finding reliable sources of income have turned to some of the “dividend hero” investment trusts to plug the gap, in the hope that boards will continue to increase income payments to maintain their reliable dividend records.
Of the 11 trusts that have increased dividends for 40 years or more, the majority have moved to trade on a premium or a small discount to their net asset value over the past couple of weeks.
A higher premium of 7.4% is attached toScottish American. The Baillie Gifford managed trust is 11th in the “dividend hero” rankings complied by the Association of Investment Companies (AIC), having increased payouts for 40 years.
Two other trusts on course to raise their dividends for 54 years on the trot areBankers and Alliance Trust. Bankers is currently trading on a small premium of 1.7% and Alliance Trust a small discount of -4%.
Other trusts that have increased dividends for four decades or more and have low discounts include JPMorgan Claverhouse (-2.8%) Murray Income (-3.6%) and Brunner (-4.2%).
According to Numis, the low discounts, in particular for the UK equity income trust sector, are “reflecting investor hopes that dividends can be maintained using revenue/capital reserves”.
It adds: “We expect most boards to be faced with the decision of whether to use reserves to pay an uncovered dividend in 2020. Ultimately, we believe it makes sense to support dividends with revenue reserves if the shortfall is expected to be relatively short-lived, and there is an expectation of returning to full cover. We expect more reticence about distributing from capital reserves, but the line between capital and income is increasingly blurred.”
Numis further adds: “We would expect numerous investment trusts to be keen to continue their records of multi-decade years of consecutive dividend.”
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Analysis at the end of March by the investment companies team at Investec Securities found that all 17 UK equity income investment trusts it analysed (although there are 24 in the sector as a whole) would be able to endure a 30% fall in dividend income from their underlying holdings over the next year, and still pay a progressive dividend (it modelled a 3% rise). The 30% figure was used because this is the dividend decline that is being priced in by the futures market.
However, given the increasingly challenging backdrop for dividends, some trusts in other sectors have already made adjustments. For example, BMO Commercial Property has suspended its monthly dividends, while Invesco Smaller Companies investment trust has removed its 4% dividend target yield.
TORONTO – Strength in the energy and base metal stocks lifted Canada’s main stock index higher in late-morning trading, while U.S. stock markets also climbed higher.
The S&P/TSX composite index was up 78.80 points at 23,973.51.
In New York, the Dow Jones industrial average was up 89.81 points at 42,214.46. The S&P 500 index was up 2.55 points at 5,721.12, while the Nasdaq composite was up 21.24 points at 17,995.51.
The Canadian dollar traded for 74.24 cents US compared with 74.02 cents US on Monday.
The November crude oil contract was up US$1.06 at US$71.43 per barrel and the November natural gas contract was down two cents at US$2.83 per mmBTU.
The December gold contract was up US$18.10 at US$2,670.60 an ounce and the December copper contract was up 15 cents at US$4.49 a pound.
This report by The Canadian Press was first published Sept. 24, 2024.
TORONTO – Canada’s main stock index was essentially unchanged Friday, while U.S. markets were mixed to end the week, with the Dow ekeing out a new record high.
The S&P/TSX composite index closed up 1.28 points at 23,867.55.
In New York, the Dow Jones industrial average was up 38.17 points at 42,063.36. The S&P 500 index was down 11.09 points at 5,702.55, while the Nasdaq composite was down 65.66 points at 17,948.32.
The Canadian dollar traded for 73.72 cents UScompared with 73.73 cents US on Thursday.
The November crude oil contract was down 16 cents at US$71 per barrel and the November natural gas contract was up 12 cents at US$2.72 per mmBTU.
The December gold contract was up US$31.60 at US$2,646.20 an ounceand the December copper contract was down a penny at US$4.34 a pound.
This report by The Canadian Press was first published Sept. 20, 2024.
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
