LAW DEBENTURE: £1bn trust delivers income… with a little professional help

Law Debenture investment trust will report its full-year results for 2023 on Tuesday. Although the board is tight-lipped about the financial figures, it would be a big surprise if shareholders weren’t rewarded with a healthy final quarterly dividend payment, delivering another year of revenue growth.

The final dividend for 2023 is of utmost importance for investors, because they should also be able to calculate (with great confidence) what income awaits them during the first three quarters of this financial year. In recent years, the trust’s board of directors has set these payments based on the average quarterly income paid in the previous year.

So in 2022, an annual dividend of 30.5 per share resulted in payments for the first three quarters of last year equal to 7.625 per share. There is little indication that the board will deviate from this policy when it announces the 2023 results.

Income is a central component of what legal obligation is all about. The billion-pound trust has been maintaining or increasing its annual dividend for 44 years and growing it for 13 consecutive years.

Although this record cannot be compared with rivals such as City of London, JP Morgan Claverhouse and Murray Income, which have increased their dividends for at least 50 years. Law Debenture’s ability to extract superior overall returns (income and capital gains) makes it an attractive proposition.

For example, over the past five years the trust has generated total shareholder returns of just over 62 per cent. In contrast, the City of London, JP Morgan Claverhouse and Murray Income posted respective returns of 24.5, 17.1 and 32.8 percent.

Law Debenture is an unusual equity investment trust in the UK. Although 80 per cent of its assets are invested in listed shares (mainly UK companies) and managed by investment house Janus Henderson, the remainder comprises ownership of unlisted financial company Independent Professional Services (IPS).

IPS has many aspects in its favor, including the provision of fiduciary services to both pension funds and companies; and a company secretariat facility. It generates a lot of income, which enhances the trust’s ability to pay shareholders an attractive stream of income.

Denis Jackson, chief executive of the trust, says: ‘Independent professional services are a key cog in driving the trust’s performance. In the last ten years, it has delivered a third of the income that has translated into dividends for shareholders.’

And he adds: ‘It is a set of companies that works well as a portfolio. In terms of income generation, they never flourish all together, which is a good thing. It means that IPS has the ability to generate profits through thick and thin, regardless of whether interest rates are at 0.25 or 5.25 percent, or whether inflation is rising or falling.’ In the first half of 2023, IPS generated revenue of £24.1 million, £2.5 million more than the previous year.

The share portfolio, managed by James Henderson and Laura Foll at Janus Henderson, comprises more than 150 holdings. It includes many income-friendly stocks, such as Shell, BP and GlaxoSmithKline. But the income IPS generates allows investment managers to buy stakes in companies such as engineering giant Rolls-Royce, which currently does not pay dividends.

The stock, the trust’s largest shareholding, has seen its price recover almost 200 per cent over the past year. The trust’s annual income amounts to just under 4 per cent and the ongoing annual charges are low at 0.48 per cent. Its stock identification code is 3142921 and its ticker is LWDB.