The old-fashioned funds with a great record on dividends

| August 12, 2012 | 0 Comments

By
Richard Dyson

16:06 EST, 11 August 2012


|

16:06 EST, 11 August 2012

The income drought is many savers’ biggest worry. But some shrewd investments made years ago are, for some, proving their worth by paying a rich and consistent income.

So where should today’s investors put their money with the aim of delivering a reliable income now and in ten, 20 or even 30 years’ time?

A group of funds attracting renewed interest are investment trusts – particularly those with long histories of paying dividends.

Confidence: Barry Long puts his money into funds that have survived wars and depressions

Confidence: Barry Long puts his money into funds that have survived wars and depressions

Until recently dismissed as ‘dinosaurs’, these funds, which are structured as companies and exist solely to safeguard shareholders’ wealth and pay an annual divi, are coming back to the fore.

‘Spivvy investments have had their day,’ says Simon Moore, head of research at financial adviser Bestinvest in Mayfair, central London. ‘After the dotcom boom and the banking crisis, investors want old-fashioned virtues, they want pedigree, they want a good track record.’

And many investment trusts, with their Victorian origins and focus on preserving investors’ capital and paying a regular dividend, fit the bill. A large number have survived two world wars. An elite group can also boast to have increased the dividend they pay to shareholders every year for more than 20 years – financial crisis or not.

‘Before the crisis those attributes might have been derided as boring,’ says Moore. ‘But the crisis has shown that in investment, as in banking, boring can be good.’

Investment trusts are like other funds in that savers’ money is pooled and used to buy a range of assets, usually shares in other businesses. Bonds, property and other investments might also be bought.

A trust has a board of directors to represent shareholders’ interests. The board appoints a fund manager, negotiates the manager’s contract and then checks that performance remains strong.

Different trusts have different objectives, but those gaining most interest today are the ‘divi dears’ – typically large, globally invested, income-oriented portfolios with decades of track record behind them.

Barry Long started building a portfolio of investment trust shares between 15 and 20 years ago, using what were then Peps – subsequently replaced by Isas – to shield his holdings from tax. Today he has a portfolio of many investment trusts, including divi-paying giants such as Scottish American, Temple Bar, Alliance and British Empire Securities.
Many of these holdings now produce a valuable income.

Shares in Temple Bar, for instance, cost 295p each in 1992. Today each pays a divi of more than 35p a year – equivalent to a yield of 12 per cent on his original investment.
And with shares in Temple Bar trading currently at 948p, he has enjoyed more than 200 per cent capital growth to boot.

Barry, 64, a retired solicitor, says: ‘I am a great believer in looking at the track record of an investment vehicle and these trusts have substantial histories.

‘The fact they’ve survived wars, depressions, the lot – it gives me confidence.’

Barry and his wife Angela, 60, who live in Rotherham, South Yorkshire, have not yet drawn income from their investment trust holdings. Instead, they have reinvested the divis as they’ve gone along.

But Barry says: ‘The dividends are clearly an important part of the overall return. If we need to draw that income, we can. It’s there.’

table.jpg

The table above shows six investment trusts selected from the two sectors most focused on delivering dividend income to investors – UK Growth and Income, and Global Growth and Income.
The trusts have been paying a dividend that has grown, year on year, for the longest period.

By comparing the dividend currently paid (in the first column) to the share price today, you get a current yield – in most cases between four and six per cent.
T

he share prices from ten and 20 years ago (the last two columns) show what the dividend is today relative to investments made in the past. These historic prices also show the extent to which the value of shareholders’ capital has been enhanced, or not.

In the case of Scottish American, for instance, shareholders saw no growth in share price between 1992 and 2002. This was due to disastrous losses in the years 2000 and 2001, when the company’s value halved. The board of Scottish American subsequently replaced the fund manager.

Philippa Gee of Philippa Gee Wealth Management in Church Stretton, Shropshire, warns: ‘Bear in mind these investments are not risk free. They suit mature investors who are going to own these shares for many, many years and who will not worry about how the share price fluctuates in the meantime.

‘For many, it is absolutely right to focus on dividends – and these are investments that should definitely play a part.’

Most big investment trusts, including those shown here, offer dealing facilities allowing savers to buy shares. It is often more convenient to use a low-cost broker such as Alliance Trust Savings, Hargreaves Lansdown, Barclays Stockbrokers or Clubfinance where different trusts’ shares can be managed together in a single portfolio and held within an Isa or pension account.

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