Where are safe havens in the dividend crisis?

After this year’s Dividend Crisis we’re devoting this issue of Investment Trust Insider to another look at the search for reliable income. If you’re seeking safe income havens, investment trusts are an excellent place to start of course. The Association of Investment Companies’ influential list of ‘Dividend Heroes’ with dividends that have consistently risen for 20 years or more reflects the structural advantages of investment trusts.

Firstly, many have built up big reserves of income which they are tapping into in order to sustain dividends even when the companies they invest in are cutting payouts.

Secondly, if revenue reserves run dry many can also distribute dividends from capital gains on their investments.

One well-known trust considering using capital reserves is City of London, which has increased its dividend for a record 54 years and is determined to get to 55. For our first feature Danielle Levy spoke to Job Curtis, City’s fund manager for nearly three decades, before publication of its 2020 annual report last week.

After the huge setback for the largely blue-chip portfolio during the pandemic crash, Danielle found the manager in a surprisingly optimistic mood, believing that we may have passed the worst in stock market terms as companies begin to reinstate their dividends. Currently 12% of the stocks Curtis holds in City are not paying dividends, a figure he expects to drop to just 2% next year.

The annual rate of inflation fell from 1% in July to 0.2% in August as coronavirus concerns once again weighed after the ending of lockdown. Nevertheless, investors remain concerned at the potentially inflationary impact of government and central bank policies to get us out of the pandemic hole. ’If inflation is not in the numbers, it is on everyone’s lips,’ as one pundit puts it. In our second feature Jennifer Hill asks experts to pick a range of investment companies offering varying degrees of protection against advances in the cost of living.

Lengthy property leases are one way to lock into attractive index-linked rental income but, as Michelle McGagh finds in our last feature, a long lease is only as good as the tenants behind it, a reminder that investors and fund managers need to pick their way carefully through the recession unfolding before our eyes.