Investment trusts dished out an extra £87m in dividends during 2020 as they “beat the global dividend drought”, according to new research from Link Group.

Figures showed that this was equivalent to a 4.2% annual increase.

The latest UK Dividend Monitor from Link stated that during the crisis months of April to December, more than three-quarters of trusts investing in equities raised payouts or held them steady.

Link suggested the feat was “especially impressive” given that that UK dividends fell 38% during the year, on an underlying basis, while Janus Henderson’s Global Dividend Index also showed global payouts were down 12.2%.
 
Collectively, investment trusts distributed a record £1.88bn in 2020 and have increased what they pay to investors by 123% in the last 10 years – every year without fail has shown growth.

Trusts investing in UK equities raised payouts by 3.8%, in stark contrast to the 38% underlying decline in UK dividends. The index confirmed that they contributed three-tenths of the overall increase in investment trust dividends for the full year.

Link Group UK CEO, Susan Ring, commented: “The more internationally diversified trusts are, the less they have been exposed to the steepest dividend cuts. Global trusts have big reserves and have seen a relatively small reduction in the dividends paid to them by the companies they hold.

“Trusts focused on UK equities are more vulnerable. They still enjoy the cushion of long-accumulated reserves, but prudence suggests some cuts are likely as dividends from UK companies are going to take some time to regain previous highs.”

Janus Henderson Investors director and head of investment trusts, James de Sausmarez, added: “For those investors looking for reliable, regular income, 2020 was a timely reminder of why investment trusts should be a core part of their portfolio.

“Unlike open-ended funds, investment trusts have the ability to save income in a revenue reserve in years of plenty and then dip into it in those rainy day years to at least maintain and often increase the dividend for shareholders. Last year was just such a year and the level of dividend increases were influenced by both the size of each company’s revenue reserve and the Board’s view of how quickly revenues would recover.”

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