Inflation is going to become an increasing area of concern for investors this year. When shopping around for investment companies for their portfolios, one of the key criteria is going to be whether trusts have been able to grow both their dividends and their share price over the past five years.
Below are 1o companies which have increased their dividends over the last five years by more than the CPI rate (Consumer Price Inflation), which sits at 2.5% over that period. None of the below have cut their annual dividends over this period – yes, that includes during the worst of the pandemic – and all pay a yield of over 4%.
| Investment company | AIC sector | Dividend yield | 5yr dividend growth/yr | 5yr share price return/yr |
|---|---|---|---|---|
| VPC Specialty Lending Investments | Debt – Direct Lending | 8.44% | 10.80% | 4.75% |
| Greencoat UK Wind | Renewable Energy Infrastructure | 5.38% | 2.52% | 4.24% |
| JPMorgan Russian Securities | Country Specialist | 5.10% | 20.11% | 4.50% |
| Apax Global Alpha | Private Equity | 4.81% | 22.43% | 10.22% |
| Merchants | UK Equity Income | 4.69% | 2.53% | 3.43% |
| JPMorgan Asia Growth & Income | Asia Pacific Equity Income | 4.51% | 45.11% | 5.97% |
| Invesco Asia | Asia Pacific Equity Income | 4.31% | 32.84% | 7.25% |
| Henderson International Income | Global Equity Income | 4.14% | 6.26% | 4.35% |
| Lindsell Train | Global | 4.14% | 42.18% | 15.70% |
| BlackRock Sustainable American Income | North America | 4.01% | 11.22% | 4.96% |
Source: AIC using Morningstar (as at 02/02/2022). AIC members only.
Direct lending and renewable energy infrastructure
The list is headed up by VPC Specialty Lending Investments, a listed trust that lends to sponsor-backed alternative lending companies. It looks to realise an average coupon of 11.84% from asset-backed loans. Its dividend, paid quarterly, is almost 100% covered by interest income and fully covered by NAV total returns. It acts as a lender of lenders, with loans secured against the loans of portfolio companies. First loss protection is provided by the borrowers. The underlying loans are primarily consumer loans, to borrowers in the UK, US and Latin America. There are also loans to smaller businesses, but this only makes up around 15% of the portfolio.
In second place is Greencoat UK Wind [LSE:UKW], which was the first renewable energy infrastructure investment trust to hit the market. The trust is one of the best performers in its sector. According to Kepler Trust Intelligence, “UKW remains the only renewable energy infrastructure fund to explicitly state that its aim is to grow dividends in line with inflation.” The trust is well positioned politically, as the UK government is going to have to significantly ramp up its offshore wind generation capacity if it is going to meet its carbon neutrality goals by 2050. Greencoat UK Wind’s NAV has been strong and uncorrelated with volatility in the equity market.
JP Morgan Russian Securities
With tensions in Eastern Europe running at the highest we’ve seen them since 2014, some investors may think twice about taking a punt on Russian assets right now. This trust represents major exposure to Russia, a market which has the potential to provide investors with some excellent returns when conditions are right. Russian companies have been climbing into the dividends train in recent years, pushed in part by the government, which has pushed for mandatory pay-out ratios for state-owned enterprises. The trust has repositioned to a total return from capital recently as a consequence of these reforms. Caveat emptor, if Russia invades Ukraine in the next few weeks or months, expect the Russian private sector to take a big hit from further sanctions, which could take it years to recover from. A bit of a gamble, this one.
