How investment companies continued to pay income in 2020
More than four-fifths (85%) of equity income-paying investment companies increased or maintained their dividends in 2020 despite the impact of the pandemic, according to AIC data.
Out of 129 equity investment companies yielding more than 1%, 82 (64%) increased their dividends to shareholders in 2020 with 28 (22%) maintaining the same pay-out as in 2019.
In contrast, out of 700 open-ended funds yielding over 1%, 159 (23%) increased their dividends in 2020 and none held dividends at the same level as 2019.
Investment companies’ income resilience was even stronger in the equity income sectors. In the UK Equity Income sector, 91% of investment companies maintained their dividends in 2020, compared to only 4% of open-ended funds in the same sector.
In the Global Equity Income sector, 100% of investment companies maintained dividends, compared to 24% of open-ended funds.
See the full research
The data demonstrating investment companies’ dividend resilience comes as the AIC unveils an updated list of the 19 “dividend hero” investment companies. These have consistently increased their dividends for at least 20 years in a row.
Six dividend hero investment companies have now increased dividends for 50 or more consecutive years. City of London, Bankers and Alliance Trust lead the way with 54 years of consecutive increases. They are followed by Caledonia Investments (52), BMO Global Smaller Companies (50), and F&C Investment Trust (50).
Resilient income has rarely been more important, with UK dividends falling 41% in 2020 in response to the COVID-19 crisis, and dividends globally 12% lower in 2020 than 2019, according to Janus Henderson’s Global Dividend Index (February 2021).
Annabel Brodie-Smith, Communications Director of the AIC, said: “The fact that so many equity investment companies were able to increase or maintain dividends during such a devastating year highlights the power of investment companies’ income advantages. Many investment companies made use of their revenue reserves, a structural benefit unique to investment companies, which enables them to save up to 15% of the income they receive each year. Investment companies can draw on these reserves to boost pay-outs during difficult times like last year.
“As many investors rely on their investment income to pay for the gas bill or the weekly shop, it’s reassuring to see investment companies are delivering when it really matters. However, it’s important for investors to remember that dividends are never guaranteed. It’s up to an investment company’s board to set a dividend strategy which is in the best interests of their shareholders.”
See a list of the dividend heroes
Waiting in the wings to become dividend heroes, there are now 23 investment companies that have increased their dividends for at least ten, but fewer than 20 years.
These include seven new additions to the ‘next generation’, which have notched up a decade of uninterrupted dividend increases. The new joiners are Chelverton UK Dividend, Invesco Select Trust Global Equity Income, JPMorgan Elect Managed Income, Aberforth Smaller Companies, TR Property, Henderson Opportunities Trust and Fidelity European Trust.
Athelney leads the next generation of dividend heroes having increased its dividend for 18 consecutive years. Completing the top three are BlackRock Smaller Companies (17) and Henderson Smaller Companies (17) with Artemis Alpha Trust (16) and Murray International (16) following close behind.
See the next generation of dividend heroes
Note on the research Source of all investment company and open-ended fund data is AIC/Morningstar. The finding that 85% of income-paying equity investment companies increased their dividend in 2020 is based on investment companies in equity sectors with a 12-month rolling yield of more than 1% at 31 December 2019. Dividend data compares the total pence per share (or traded currency if different) in the 2020 calendar year with 2019 based on pay dates, and excludes special dividends. Data for open-ended funds is based on the primary share classes of open-ended funds with a 12-month rolling yield of more than 1% at 31 December 2019, and excludes feeder funds.
