Ian Cowie: ‘awesome eight’ income trusts let investors have their cake and eat it

Our columnist points out that income-seeking investors do not need to sacrifice total returns when sizing up investment trusts with more than half a century of annual pay rises.

Contrary to what cynics claim, income-seeking investors do not need to sacrifice total returns to sustain rising dividends over 50 years or more.

New analysis of the crème de la crème of income-yielding investment trusts shows how an ‘awesome eight’ have not only increased annual payouts for half a century or more without fail, but seven of them have at least doubled shareholders’ capital over the past decade.

• Invest with ii: Buy Investment Trusts | Top UK Shares | Open a Trading Account

While the past is not necessarily a guide to the future, it is notable that the only trust in this group that fell short of a 100% total return did so by just 1%. Better still for bargain-hunters today, three of them continue to be priced at double-digit discounts to their net asset value (NAV).

JPMorgan Claverhouse (LSE:JCH), launched in 1963, has raised shareholders’ pay every year for the past half-century. This stalwart of the Association of Investment Companies (AIC) ‘UK Equity Income’ sector currently yields 4.76% income, after increasing dividends by an annual average of 4.88% over the past five years. Total returns were 110%, 20% and 4% over the past decade, five years and one-year periods respectively, according to independent statisticians Morningstar. JCH trades at a 5.5% discount to its £492 million assets, with ongoing charges of 0.66% a year.

Brunner (LSE:BUT) Investment Trust, launched in 1927, has boosted dividends for 51 years without fail. Like half the ‘awesome eight’, it is in the AIC ‘Global’ sector. It yields just over 2% income, rising by 5.44% per annum over the past five years. Its total returns over the three periods mentioned above were 193%, 59% - the highest return over five years among our ‘awesome eight’ - and 5.1%. It remains priced 11% below its NAV, with ongoing charges of 0.63%.

• Jeff Prestridge: why I love income shares and these dividend heroes
• ISA fund ideas for different ages and stages
• Monthly income funds: the best way to get consistent income?

F&C Investment Trust (LSE:FCIT), another ‘global’ giant, is the biggest and oldest in this group with total assets of £5.4 billion after being launched in 1868. Its 1.41% dividend yield is rising by 5.38% per annum. Like BUT, it has raised dividends for 51 years and FCIT is also the top-performer over the past decade and one-year periods with total returns of 225%, 57% and 15%. FCIT trades at a modest 1.6% discount to NAV, with charges of 0.54%.

The self-descriptive Global Smaller Companies Trust (LSE:GSCT) has increased dividends for 52 years without fail. Launched in 1889, it currently yields only 1.2% but payouts are rising by 8.48% per annum, the highest growth rate in this group. So if this rate of ascent is maintained - which is not guaranteed - shareholders’ income would double in eight years and six months. Total returns are 130%, 24% and 4.75% with GSCT charging 0.75% and trading at an 11% discount.

Caledonia Investments (LSE:CLDN) has increased dividends for 55 years. This £2.7 billion giant of the ‘Flexible Investments’ sector was launched in 1960 and currently yields 1.83% rising by 3.64% per annum. Total returns are 167%, 50% and 8.6%. CLDN currently trades at a 29% discount - the biggest in the ‘awesome eight’ - and charges 0.84% per annum.

Alliance Trust (LSE:ATST) is a giant of the ‘global’ sector with total assets of £3.3 billion, which has increased shareholders’ pay for 56 years without fail. It currently yields 2.4% rising by 8.33% per annum, the second-highest rate of ascent in this group. Founded in 1888 its total returns over the usual three periods were 193%, 49% and 6.5%. ATST is priced at a 5.9% discount and charges 0.6%.

• 20 investment trusts cheaper now than during Covid-19 sell-off
• Top 10 most-popular investment trusts: February 2023
• Tips and tricks on how to generate a sustainable monthly income

Bankers (LSE:BNKR) Investment Trust is another giant of the ‘Global’ sector with £1.59 billion assets. Like ATST, it was founded in 1888 and has also raised dividends for 56 years. It currently yields 2.25%, rising by 4.59% per annum. Total returns were 154%, 30% and - the only annual loss among our ‘awesome eight’ of -2.8%. That setback may explain the shares trading at a 8.5% discount. Its ongoing charges are low, at 0.5%.

City of London (LSE:CTY) completes a triumvirate of trusts with 56 consecutive years of dividend increases. Like JCH, this is a giant of the ‘UK Equity Income’ sector. It has total assets of £2.12 billion, after being launched in 1891 and, more recently, delivering total returns of 99%, 32% and 10.7% respectively. Although CTY is the only member of this group trading at a small premium of 1.97% above its NAV, it also delivers the highest yield, with a current payout of 4.68% rising by 3.25%. CTY also has the lowest ongoing costs in this group, charging 0.37% per annum.

It just goes to show that - whatever the cynics may say - these ‘awesome eight’ investment trusts have achieved more than half a century of annual pay rises, plus substantial capital growth, without high costs. So it seems some shareholders really can have their cake and eat it.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.