The investment trusts that will prove resilient when dividends come under pressure – with 20 UK companies scrapping or suspending them
- Twenty UK companies have said they will cut or suspend dividends
- But some income-inclined mutual funds should prove more dividend-resistant because of the income reserves they squeezed
Dividend cuts are an inevitable consequence of the economy – both here and worldwide – going into recession in the coming months.
It’s also a good answer, preferably accompanied by directors who give up their generous bonuses if it means that the money saved can help companies survive the current crisis.
Already 20 UK companies have already said they will cut or suspend their dividends.
These include the home builder Crest Nicholson, which has scrapped the final dividend of 21.8p per share that would pay the following month for the year ending November 2019 – a move that has upset investors.
At least 20 British companies have declared to reduce or suspend dividends
This means that for the year, shareholders received only 11.2 pence per share in dividends, compared to 33 pence in the previous financial year. Bookmaker William Hill, software company Micro Focus and shoe store Shoe Zone have also cut dividends.
The FTSE 250 company National Express has not gone that far yet, but has reviewed the announced final dividend of 11.19p per share for 2019.
While other companies are likely to follow suit, some investment funds with an income trend should prove more dividend-proof due to the income reserves they have withered.
Data collected by the Association of Investment Companies shows that 21 investment funds have increased dividend payments to shareholders every year for more than 20 years.
Of these, 13 have now tucked enough income into their reserves to pay out dividends for at least a year if future stock dividend payments dried up.
They include FTSE 100-listed Scottish mortgage, a number of long-term 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 funds have built up these reserves because regulations allow them to store 15 percent of the income they receive annually from participating interests.
Mutual funds – commonly known as open-ended unit trusts or investment companies – should not do this.
Andrew Bell is CEO of Witan, the global trust. The £ 1.2 billion confidence 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” that confidence can continue to increase dividends. But he adds that this would only happen if “sensibly” did.
“Dividends are less volatile than stock prices,” he says, “and we hope that even in a bad year for some of the trust portfolio, some companies will still be in dividend growth.”