Investment trust holders enjoy record dividend payouts

Investment trust dividends rose 15.4% in the year to March 2022.

Investment trusts paid record dividends to their shareholders in the 12 months to the end of March, according to the latest Investment Trust Dividend Monitor from the Link Group, an IT software company.

“Many investment companies have a long track record of delivering dividends through crises and this has proved true during the COVID-19 pandemic,” said Richard Stone, Chief Executive of the Association of Investment Companies.

Investment trusts paid out £5.5 billion in the year leading up to March, a 15.4% year-on-year rise in dividends.

One reason why investment trusts have become an “interesting proposition” for some investors is because of the security in their boards of directors during periods of economic uncertainty, said Stone.  

“Investment companies also have independent boards of directors who look after shareholders’ interests, another important feature in tough market conditions,” he elaborated.

Much of this increase in dividend payouts was driven by alternative investments, or trusts which invested in renewable energy, Venture Capital Trusts and property among other sectors.

Of the £5.5 billion investment trusts paid out, two thirds came from alternative investment dividends.

Year-on-year payouts for alternative investments rose by just over 25%, amounting to £3.65 billion worth of dividends.

“Ten years ago, alternatives were a much smaller segment of the investment trust market, but they have rapidly expanded as new investment opportunities have opened up in response to investor demand,” said Ian Stokes, Managing Director at Corporate Markets UK and Europe.

In fact, alternative investment trust dividends are nine times larger now than in 2010.

Much of their appeal to investors can be seen in assets that are not readily available on public markets, like a stock exchange.

“[It means] investors can diversify their income in assets that are usually noncorrelated to equity markets,” said David Smith, Manager of Henderson High Income Trust.

Investment trusts that invested in listed equities, such as stocks on the FTSE 100, paid out dividends of £1.85 billion in the year to March.

It means dividend payouts for equity investment trusts were 4% higher than the first quarter of 2021.

“In what has been a difficult period for equity income investors, given the sheer amount of dividend cuts, suspensions and postponements due to the pandemic, equity investment trusts have been able to utilise their revenue reserves to at least maintain dividends to shareholders,” said Smith.