Murray International Trust’s (LON: MYI) track record of dividend growth could make it increasingly attractive in an era of higher inflation.
The investment trust has delivered annualised dividend growth of 4.3% per share over the past decade. During that time, the UK consumer price index (CPI) briefly reached a high of around 5% in 2011, but has spent much of the past ten years below the Bank of England’s 2% target.
Now, though, a period of higher inflation may have arrived. June’s figure of 2.5% was the highest reading for three years. It was greater than the Bank of England had expected and could potentially be the start of a sustained period of higher inflation prompted by an improving economic outlook that has been catalysed by vast monetary and fiscal stimuli.
In addition, the trust’s dividend yield of 4.8% may hold significant income appeal while many large and mid-cap shares are struggling to offer attractive yields. Their income returns are being held back by a combination of high stock market valuations, as well as a sluggish return to dividend payouts caused by an uncertain period during the pandemic.
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Diversification benefits of Murray International Trust
As well as a high yield and a strong track record of dividend growth, the Murray International Trust offers a diverse portfolio. Around 90% of its assets are held as equities from across the global economy, with the remaining 10% made up of fixed-income securities.Its holdings are geographically diverse, with Asia Pacific-listed equities accounting for 28% of total assets and North American stocks making up 27% of its asset base. It also holds 6% of its portfolio in UK equities, while its fixed-income holdings are similarly from a broad spread of regions. This could allow it to offer a more reliable rate of dividend growth – especially when different regions of the world economy may recover from the pandemic at different rates.
Meanwhile, the trust’s ongoing charges figure (OCF) is moderately high compared to some of its peers at 0.68%. It currently trades at a 2.5% discount to net asset value (NAV). This represents modestly good value for money compared to an average premium of 1.8% over the past five years.
Income, rather than capital growth
Despite achieving its aim to offer an above-average yield and deliver inflation-beating dividend growth, the trust’s capital returns have been less impressive in recent years. It is a fourth quartile performer over the past five years when compared to its Investment Trust Global Equity Income sector peers. Meanwhile, its annualised capital growth of 2% in the past decade is only equal to the FTSE 100’s disappointing performance.
Additionally, Murray International Trust has been volatile in the past three years when compared to other global equity trusts. It is a third-quartile performer in that time, which could deter some investors who are seeking a degree of stability following an eventful 18 months for the world economy.
However, the trust’s high yield and track record of dividend growth suggest that it has income investing appeal. Certainly, there are other companies with superior track records, and prospects, when it comes to delivering capital growth. But it could be an attractive long-term option should a relatively high and growing income, combined with capital preservation, emerge as greater investing priorities in an increasingly inflationary environment.
