SCHRODER INCOME GROWTH: Dividendheld targets 26 years of growth
The manager of investment fund Schroder Income Growth is confident that the fund can live up to its name in the coming weeks by confirming another year of dividend growth.
The £212m listed trust is one of only 18 funds to have weathered market shocks and droughts by increasing the annual income it pays shareholders over more than 20 years. In Schroder’s case, the trust hopes to deliver 26 straight years of annual dividend growth when it announces the size of its final quarterly payment for the fiscal year ending Aug. 30 later this year.
Having already paid shareholders 7.5 pence (same as last year), it has to pay more than 5.1 pence to stretch 25 to 26.
Sue Noffke, head of UK Equities at Schroders, is manager of the trust which receives more than 80 per cent of its dividends from UK-listed companies. She is “confident” that the trust will increase its annual dividend again, despite “challenges”.
Noffke says, ‘We are very proud of our dividend history and our status as a dividend hero’ – a reference to the label the Association of Investment Companies, the Association of Investment Companies, has given to trusts with more than 20 years of dividend growth.
In the previous fiscal year, through the end of August 2020, the trust leveraged its inventory of income reserves to ensure its annual dividend income to shareholders increased – by just over 1.6 percent.
This arsenal, which equates to just under an annual dividend, consists of income earned in the past from its holdings, but not paid out. It is used to supplement shareholder income when dividend terms are difficult, such as in the wake of the pandemic.
On the outlook for UK dividends in general, Noffke says, ‘the UK stock market is still where investors go for income’.
Over the past year, Noffke has changed the trust’s portfolio, in part as a result of rival companies’ acquisition of some of its key holdings – bookmaker William Hill (bought by UK-listed 888 Holdings); infrastructure company John Laing (acquired by private equity group KKR); and security group G4S, which was bought by US rival Allied Universal.
The money from these acquisitions — plus that from other portfolio divestments, such as stakes in tobacco giant BAT and energy company Galp Energia — has been used to build new stakes in a range of companies.
These include construction giant Balfour Beatty, BT, private equity specialist Bridgepoint, healthcare company ConvaTec, energy company Drax and construction materials supplier Travis Perkins. Often, the acquisitions were driven by Noffke’s belief in the quality of new management deployed to revive a company’s fortunes.
This is especially true at ConvaTec, a leader in advanced wound care and ostomy care. ‘It is a supplier of cheap items such as stoma bags’, she says. “What I like about the business model is that customers become lifelong customers. But the big plus for us as an investor is the chairman John McAdam, who we know from his time at Rentokil. We trust him to point ConvaTec in the right direction.”
Schroder Income Growth has outperformed the FTSE All-Share Index over the past one, three and five years with total returns of 36, 21 and 49 percent, respectively.
The exchange identifier is 0791586 and the market ticker is SCF. The annual cost is 0.86 percent. Other AIC “dividend heroes” include Alliance, Bankers and City of London trusts.