Monday 29 March 2021 12:01 am

Investment trusts beat dividend drought with record payouts

As companies across the globe slashed payouts during the pandemic investment trusts beat the drought by raising dividend payments to record levels. 

Investment trusts dished out an extra £87bn in dividends last year, equivalent to a 4.2 per cent annual increase. 

Between April and December 2020 more than three quarters of trusts investing in equities upped their payouts, according to Link Group’s Dividend Monitor. By comparison UK dividends fell 38 per cent over the year on an underlying basis. 

Read more: Burford Capital restores dividend following record year for realised gains

The sustained level of payments is in large part due to the large reserves the sector laid down in previous years. Link’s research shows investment trusts held back £1.6bn that could be used to support payouts during the crisis, which is equal to all dividends paid in 2018. 

Link estimates trusts will have used £700m of these reserves by the anniversary of global lockdowns comes around. 

““The more internationally diversified trusts are, the less they have been exposed to the steepest dividend cuts. Global trusts have big reserves and have seen a relatively small reduction in the dividends paid to them by the companies they hold,” Link Group chief executive Susan Ring said. 

Among regional trusts, emerging markets and Japan performed best with solid growth rates and were less prone to cuts too. However European-focused trusts were less successful. 

Large cap European trust dividends fell 18 per cent as three quarters of trusts in the sector slashed payments. 

Read more: UK housebuilder Bellway ups selling price expectations and reinstates dividend

“Trusts focused on UK equities are more vulnerable,” Ring added. “They still enjoy the cushion of long-accumulated reserves, but prudence suggests some cuts are likely as dividends from UK companies are going to take some time to regain previous highs.”

Ian Sayers, chief executive of the Association of Investment Companies added: “Investment trust investors, particularly those in retirement, often value consistency above all else when it comes to the income they expect from their holdings. There is no doubt the sector has delivered that over the last decade and has proved its mettle in the 2020 crisis too.”

Read more: Old Mutual restores dividend despite annual loss

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