The select group of 18 investment trusts branded 'dividend heroes' have been celebrated for increasing their shareholder payout at least 20 years in a row, of which 13 have done so for at least four whole decades.
A list of the heroes has been confirmed by the Association of Investment Companies (AIC) on Tuesday, which hailed the structure of investment trusts as unique among funds in smoothing the delivery of dividends thanks to the ability to hold back up to 15% of the income they receive each year.
The eight dividend heroes which have increased their dividends for 50 or more consecutive years are led by City of London Investment Trust (LSE:CTY), Bankers Investment Trust PLC (LSE:BNKR) and Alliance Trust PLC (LSE:ATST), which all have hiked their payout for 56 years, followed by Caledonia Investments (LSE:CLDN) at 55 years, Global Smaller Companies Trust on 52, FTSE 100-listed F&C Investment Trust PLC (LSE:FCIT) with 51 and Brunner Investment Trust (LSE:BUT) on 51.
The newest member of this golden anniversary club is JPMorgan Claverhouse, which announced its 50th year of increased dividends at the end of January.
Hugely popular tech investors Scottish Mortgage Investment Trust PLC (LSE:SMT) (Scottish Mortgage Investment Trust PLC (LSE:SMT)) is one of five trusts that have notched dividend gains for between 40 and 49 years, a bunch that also numbers Murray Income Trust plc (LSE:MUT), The Scottish American Investment Co PLC, Witan Investment Trust plc (LSE:WTAN) and Merchants Trust plc (LSE:MRCH).
Having now increased its dividend for a 20th consecutive year, Athelney Trust PLC (AIM:ATY) is the newest entry, joining four other investment trusts to have increased their dividends consecutively for between 20 and 39 years, led by Value and Indexed Property Income Trust PLC (Vipera Plc (AIM:VIP)) on 35 years, CT UK Capital & Income on 29 years, Schroder Income Growth with 27 and abrdn Equity Income on 22.
AIC director Annabel Brodie-Smith said with investors looking for ways to protect their income in the high inflationary environment, investment companies’ ability to hold back income “gives them an edge when it comes to delivering dividends to investors. It means investment companies can reserve income when times are good to pay out in leaner years, providing smoother, more consistent dividends to investors."
She hailed the remarkable fact that there are now eight trusts with at least half a century of consecutive annual dividend increases, with the nickname not being lightly used as these heroes are “no strangers to difficult times, having raised their payouts to investors through the high inflation of the 1970s, recession of the 1990s and the global financial crisis in 2008.”
Craig Baker, manager of Alliance Trust, one of the three longest-paying trusts, said the aim is to continue delivering a rising dividend year after year as well as capital growth.
"If you had invested £100 at the start of 1968, you would have £23,926 at the end of 2022 if you reinvested your dividends, and £5,643 if you did not."
He confirmed that the trust makes use of distributable reserves to support this policy, so when the portfolio enjoys higher levels of income it retains part of it or pays a special dividend.
"By selecting stock pickers with distinctive investment styles, we can continue to focus on both income and growth, with the aim of building on our 56-year plus track record of dividend growth,” he said.
Job Curtis, manager of the 'granddaddy' of dividend payers, City of London Investment Trust (LSE:CTY), said one of the not-so-secret elements of the strategy was a core of companies that are consistent dividend growers, as well as the investment trust structure.
"We have drawn from revenue reserves in difficult years for dividends in the markets, such as 2020 and 2021, to enable us to increase our dividend,” he said.
On the outlook for equity income investing, Baker said income from stocks is "preferable to income from bonds or savings accounts" in a high inflation environment,
"The former tends to pay a set rate of interest, and savings income rarely beats inflation. Our stock pickers look for companies which can grow their earnings and therefore dividends in line with inflation by raising prices, provided they have sufficient pricing power."
Curtis said that while interest rates are higher than they have been since the financial crisis, equities "offer the prospect of dividend growth and will, in our opinion, continue to be attractive for those seeking income".
William Meadon, manager of JPMorgan Claverhouse, said his team thinks the outlook for traditional high dividend payers such as banks, energy companies and miners "looks particularly encouraging despite this new era of higher interest rates".