City of London IT moves to reassure its dividend will increase for 54th consecutive year

City of London investment trust (IT) will draw on its revenue reserves if needed to raise its annual payout in July.

City of London investment trust (IT) has moved to reassure shareholders it will be in a position to increase its dividend for the 54th consecutive year, despite the dividend drought that has emerged following the steep market sell-off over the past six weeks.  

In a statement to the stock exchange this morning (3 April), Philip Remnant, chairman of City of London IT, said the trust will draw on its revenue reserves if needed to raise its annual payout in July.

He said: “In our interim report in February, I said that the board was confident that it would be able to increase the dividend for a 54th consecutive year. Since then, a number of companies in which we are invested have cancelled their dividends. We continue to recognise the importance of dividend income to our shareholders.

“Over the last 10 years, we have set aside over £30 million into revenue reserves to underpin future dividends in circumstances such as we face now. Those reserves stood at £58.3 million at 30 June 2019, our last financial year end. If in July we need to draw on those reserves to maintain our unique record of annual dividend growth, then it is our intention to do so.”

- The UK equity income investment trusts in the best position to retain or increase dividend

Year-to-date (to 2 April), City of London IT has seen its share price decline by 29%, though it has slightly fared better than rival trusts: the average UK equity income investment trust is showing a loss of 32.6%, according to figures from FE Analytics.

In terms of portfolio activity during the sell-off in March, Job Curtis, fund manager of City of London IT, added to areas of the stock market where he sees the “least danger to dividends”, including consumer staples and utilities.

In addition, the portfolio’s exposure to retailers and travel & leisure businesses was reduced, with three shares exiting the portfolio: Cineworld, William Hill and Marks & Spencer.

Curtis says: “There is now a considerable monetary and fiscal stimulus in place, and potential for a sharp economic recovery once the lockdown is ended. Signs of progress in containing Covid-19 are likely to be needed before a sustained stock market recovery can take place.”

Dividend cancellations or postponements have been coming thick and fast over the past couple of weeks. Companies taking these measures include DFS, British Land, Halfords, Rentokil, Dunelm, Whitbread, ITV, Kingfisher, M&S, Greggs, Card Factory and housebuilders Bellway and Persimmon.

UK banks have also agreed to scrap their dividend payments to shareholders. The dividend freeze will ensure banks are better placed to support the economy during the current uncertain economic climate.

According to Richard Hunter, head of markets at interactive investor, the announcement that banks will be suspending dividends “removes a core plank of the case for buying bank shares”.

Before the announcement (made on 1 April), all of the main UK banks were on generous yields, owing to the market declines seen since the seriousness of coronavirus became apparent. Lloyds Banking Group had a dividend yield of 10.5%, Barclays 9.6%, HSBC 9%, Standard Chartered 4.9% and Royal Bank of Scotland 4.4%.