Investment trust divis fall for first time in decade but outperform wider market

Investment trust dividends have fallen for the first time in a decade but have outperformed the wider market by some margin during the pandemic, a report today reveals.

Investment trust dividends lag behind the wider market because they are paid from dividends distributed by companies held in the trusts. Picture: Jon Savage

Between January and June 2021, pay-outs fell 3.1 per cent to £891.9 million, £29m less than in the first six months of 2020. This was the first decline since the second half of 2010, according to the Link Group half-year investment trust dividend snapshot.

In the wider UK stock market, by contrast, first-half 2021 dividends (excluding one-off specials) rose by 8 per cent thanks to a favourable comparison to the cuts that began in 2020.

Investment trust dividends lag behind the wider market because they are paid from dividends distributed by companies held in the trusts.

The modest first-half decline from investment trusts is a blip compared to the broader dividend wipe-out over the course of the Covid crisis to date.

Ian Stokes at Link Group said: “Investment trust dividends cannot defy gravity, but they do come with a very plump cushion. Not only do they keep cash in reserve, but they can also bank some of the big capital gains they have made over the last year and hand these out to shareholders too.

“It is one of the most reassuring features of investment trusts that they can smooth out the peaks and troughs in dividend income caused by the economic cycle or big one-off shocks.

“The amazing stability of investment trust dividends through the pandemic is a testament to this flexibility. For investors, this regular, predictable income is very welcome indeed.”

Ian Sayers, chief executive of the Association of Investment Companies (AIC), said: “Although equity investment company dividends have fallen slightly between the first halves of 2020 and 2021, when investment companies investing in alternative assets are included, dividends across the whole sector rose by 11 per cent during the period. This demonstrates the importance of having a balanced income portfolio.

“For the full year 2020, more than four-fifths (85 per cent) of equity income-paying investment companies increased or maintained their dividends to shareholders despite the impact of the pandemic.

“In contrast, less than a quarter (23 per cent) of equity income-paying open-ended funds increased their dividends in 2020.”

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