Six ‘hidden’ investment trust dividend heroes

As seasoned investors can testify, the investment trust structure can work very well for investors looking for a regular income stream.

This is because one of the advantages of investment trusts is their ability to squirrel away income for a rainy day. Up to 15% of income generated each year from underlying investments can be saved, in what is called revenue reserves.

When there’s a period in which income from underlying investments dries up, which happened during the Covid-19 pandemic and the financial crisis, investment trust boards can utilise those reserves and top up shortfalls.

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This is why there are an impressive number of investment trusts that have raised dividends year in, year out, for long periods. Ten “dividend heroes” have consistently increased payouts for more than 50 years, with Alliance Trust (LSE:ATST), Bankers (LSE:BNKR) and City of London (LSE:CTY) leading the way with 57 years of dividend rises. Twenty trusts have increased dividends for at least 20 years.

Waiting in the wings to become dividend heroes are 33 trusts that have increased their dividends for 10 or more consecutive years, but less than 20. These are called “next generation dividend heroes” by the Association of Investment Companies (AIC).

In contrast, open-ended funds do not have the same option when there is a lean income period. Funds are required to return all income generated to investors. Therefore, if the underlying investments held by the fund are making less money, then there will be less income paid to investors.

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While there are no guarantees that investment trust boards will continue to keep income flowing, being a dividend hero is very appealing, particularly when trying to attract retail investors looking for consistent income growth.

However, for those investors seeking sustainable dividends, there are other options. Some investment trusts are “hidden dividend heroes”, flying under the radar due to not having faultless dividend track records.

With this in mind, interactive investor asked the AIC - whose data goes back to 1973 - to help identify investment trusts with long track records of growing or maintaining dividends. 

Murray International Trust

The global equity income investment trust has not cut its dividend since 1986. However, it held its dividend in 2002, 2003 and 2004. As a result, it is a next generation dividend hero with 19 years of consecutive dividend increases.

Murray International (LSE:MYI) has a higher yield - currently 4.7% - than most other global equity income funds or trusts. Another difference is that around 40% of its assets are in shares listed in the Asia-Pacific and emerging market regions. Most other global equity income funds tend to mainly stick to developed markets.

Long-standing fund manager Bruce Stout, who has managed the trust since 2004, is retiring this month and the baton will pass to co-managers Martin Connaghan and Samantha Fitzpatrick.

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Lowland Investment Company

The UK equity income investment trust, managed by James Henderson since 1990 and Laura Foll since 2016, has raised its dividend every year between 1973 and 2023. Lowland Ord (LSE:LWI) would be a dividend hero had it not held its dividend in 2009. Instead, it is a next generation dividend hero with 14 consecutive years of dividend rises.

It typically has around 120 holdings and more than 50% in small and medium-sized companies.

Law Debenture

Also managed by Henderson and Foll, Law Debenture Corporation (LSE:LWDB) is a next generation dividend hero, with 14 years of consecutive income increases. However, it has a longer track record of 45 years of growing or maintaining its dividends.

Around 20% of the portfolio consists of an ownership stake in an independent professional services (IPS) business.

Henderson has managed this trust since 2003, while Foll has been co-manager since 2019.

TR Property

Real-estate focused TR Property (LSE:TRY) would have a 29-year record of raising dividends and be a dividend hero had it not held its dividend in 2010. AIC data shows it raised its dividend every other year from 1995 onwards. It is a next generation dividend hero with 13 years of consecutive increases.

The investment trust, which invests in listed European property-related securities but is also permitted an allocation (up to 15%) to physical property, has a current dividend yield of 4.8%. It has been managed by Marcus Phayre-Mudge for the past 19 years.

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BlackRock Throgmorton

UK smaller companies trust BlackRock Throgmorton (LSE:THRG) would have hit 20 years of consecutive dividend rises last year had it not held its dividend in 2020. Apart from 2020, it raised its annual dividends every year since 2004.

It has been managed by Dan Whitestone since 2015. The trust can use high-risk contracts for difference (CFDs) in an attempt to boost returns, and also to take short positions in companies, although the latter strategy is employed sparingly. A CFD is a form of derivative designed to provide extra leverage.

Dunedin Income Growth

The trust has either held or grown its dividend for the last 43 years. It would be a dividend hero if it had not held dividends in 2010 and 2011. It is currently a next generation dividend hero, with 12 years of consecutive increases.

Dunedin Income Growth (LSE:DIG) predominantly invests in the UK, but there is also some exposure to overseas stocks, which can account for up to 25% of the portfolio. It has a high yield, of 4.9%, and a sustainable investment approach.

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‘Bar for being a dividend hero is high’

Nick Britton, research director of the AIC, says, “the bar for being a dividend hero is high – not just avoiding dividend cuts, but delivering dividend increases every single year”.

He adds: “This means that some investment trusts with near-flawless dividend consistency may fly under the radar, just because they held their dividend for a year or two during the financial crisis or the Covid pandemic.

“While the dividend heroes are rightly celebrated, it doesn’t mean that they are the only options for income seekers. The AIC website allows investors to dive into a trust’s dividend history to make their own judgement about its track record.

“You can also read what the chair says about dividends in the latest annual report, which often gives a good sense of the board’s intentions when it comes to future dividend payments.”