Dividend Heroes: The investment trusts raising payouts since England won the World Cup in 1966

Savers have been enjoying some of the highest interest rates in 15 years, but there are tentative signs that the rush to cash could be slowing.

Cash Isa subscriptions are down 40 per cent from their peak in August 2023, according to Bank of England data.

And it’s not just cash savers and bond investors who have been enjoying income returns above the rate of inflation. So are those who buy investment trusts with exceptionally long records of growing dividends.

For those looking to build a portfolio of long-term income-friendly investments, there are so-called “dividend heroes” investment trusts, which have increased their payouts to investors every year for at least twenty consecutive years.

The Association of Investment Companies has published its latest list of 20 Dividend Heroes, the trusts with the longest, unbroken track record of increasing payouts for investors, year on year.

Surprisingly, half of the 20 Dividend Heroes have increased their payouts for fifty years in a row.

And three of them, City of London Investment Trust, Caledonia Investments and Alliance, have increased their dividends for 57 consecutive years, since England won the soccer World Cup.

Interestingly for today’s investors, the share price of each of these trusts is at a discount to their net asset value.

Meanwhile, five of the trusts on the list have a dividend yield above 5 per cent: City of London, with a yield of 5.12 per cent, JP Morgan Claverhouse, with 5.18 per cent, Merchants Trust with 5.24 percent, Schroder Income Growth with 5.21 percent. and Abrdn Equity Income with a whopping 8.42 percent return.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Based on the historical dividend growth achieved by these trusts, after ten years they could be returning 8 per cent of an investment made today (based on a current yield of 5.8 percent, which increases by 3.2 percent annually).

“This also makes them an attractive transition for investors approaching retirement and looking to bolster their future income.”

Equity trusts make up a large part of the list. It’s no secret that the UK stock market has been somewhat unloved over the last few years, with Magnificent Seven stocks across the pond in the US stealing the show among investors.

Jason Hollands, CEO of Bestinvest, said: “Let’s not forget two of the key attributes of the London market (along with, at the moment, very attractive valuations): high dividend yields which are very useful for income investors, and the presence of a wide variety of publicly traded investment trusts and investment companies that can provide investors with well-diversified portfolios.

Charles Luke, manager of Murray Income Trust, said the UK is currently an attractive opportunity for income investors.

‘It provides access to companies with attractive long-term growth opportunities at valuations that are attractive on a relative and absolute basis, both in terms of earnings and dividend yield. “In effect, investors are getting global income at a knockdown price,” he added.

How have they managed to increase dividends?

The key to investment trusts being able to achieve such long records of increasing payouts lies in their structure.

They are allowed to retain some dividends in good years to help cover the bad ones.

They do not have to pay out all the income they receive from their portfolios each year. Instead, they can set aside up to 15 percent in a revenue reserve.

This is a feature that investment funds do not have and, while it is not a reason to always choose a trust over a fund, it is a strength worth considering, especially for those investors seeking income.

Annabel Brodie-Smith, communications director at the Association of Investment Companies, said: ‘Despite a tough few years for dividend heroes, ten investment funds now have at least half a century of consecutive annual dividend increases.

“They have continued to increase their payments through the high inflation of the 1970s, the recession of the 1990s, the 2008 global financial crisis and the pandemic, demonstrating their remarkable resilience.”

Laith Khalaf said: “The resilience shown by these dividend heroes for so long should provide some comfort to investors.

“Investment trusts can retain income in bad years to pay dividends in good years, a mechanism that has allowed some to continually increase their dividends for decades.”