Trusts set to prove resilient as dividends come under pressure

DIVIDEND cuts are an inevitable consequence of the economy – both here and worldwide – sliding into recession in the coming months. It is also a sound response, preferably accompanied by directors forgoing their generous bonuses if it means the money saved can ensure businesses survive the current crisis.

Already, at least 20 British companies have said they are cutting dividends or suspending them. They include housebuilder Crest Nicholson, which has axed the 21.8p per share final dividend it was due to pay next month for the year ending November 2019 – a move that has upset investors.

It means shareholders will have received just 11.2p per share in dividends for the year compared to 33p in the previous financial year. Bookmaker William Hill, software company Micro Focus and footwear retailer Shoe Zone have also axed dividends.

FTSE 250 company National

Express has not gone so far, but has put its declared final dividend of 11.19p per share for 2019 under review.

While other companies are likely to follow suit, some investment trusts with an income bent should prove more dividend- resilient because of the income reserves they have squirreled away.

Data compiled by the Association of Investment Companies shows 21 investment trusts have increased their dividend payments to shareholders each year for more than 20 years. Of these, 13 (see table) now have enough income tucked away in their reserves to pay at least a year’s dividend if future income payouts from shares were to dry up.

They i nclude FTSE 100- l i sted Scottish Mortgage, a number of longstanding global trusts – such as Bankers (managed by Janus Henderson), F&C and Alliance – and UK income funds including Murray Income and JP Morgan Claverhouse. Investment trusts have built these reserves because regulations allow them to store away 15 per cent of the income they receive every year from shareholdings. Investment funds – commonly known as unit trusts or open-ended investment companies – are not allowed to do this.

Andrew Bell is chief executive of global trust Witan. The £1.2 billion trust has increased its dividend every year since 1975 – despite seismic stock market events such as the 2008 global financial crisis.

Bell says he is ‘confident’ the trust can continue to grow the dividend. But he adds this would only be done if ‘prudent’ to do so. ‘Dividends are less volatile than share prices,’ he says, ‘and we’d hope that even in a bad year for part of the trust’s portfolio, some companies will still be in dividend growth mode.’