Top Rated Investment Trust Grows Dividend for 50 Years

Thanks to the closed-end structure and careful stock selection Bankers Trust has grown its dividend for half a century. What is fuelling future pay-outs?

Emma Wall 9 February, 2016 | 11:10AM
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Emma Wall: Hello and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Alex Crooke, manager of the Bankers Investment Trust (BNKR).

Hi, Alex.

Alex Crooke: Hello.

Wall: So, the Bankers Investment Trust has managed to grow its dividend for the last 50 years. How have you and previous managers managed to pull that off?

Crooke: I think there are a couple of things. The first one is the structure of investment trust allows us to retain some revenues and dividends in the good years and then we can pay it out in the more difficult years when maybe some companies are cutting dividends.

So, we have revenue reserves. And Bankers has almost two years of clear dividend in reserves. So, again, that allows us, I think, to pick markets and we favor lower-yielding markets over high-yielding, we can switch the asset allocation and still pay out, as you say, that consecutive growth in dividends.

The second aspect, I think, is just stock picking. We try and buy companies that grow their dividends because if they grow dividends to us as investors, we can pass it on to our shareholders.

Wall: It is a global trust, but predominantly or about 30% to 32% in the U.K. I was wondering is that something that's indicative of the fund's style or is that because you continue to see the greatest opportunities in domestic stocks.

Crooke: I think it's probably more historical. The U.K. is a very international market in terms of the listed companies. Everybody probably knows that the FTSE 100 of largest companies, a lot of international companies there. So, we get our international exposure through the U.K. sometimes with high dividends. The dividend yields are good.

And we've got some security in terms of the accounting, the governance as well of companies being listed here. But I think life is changing and markets in China and Asia are growing bigger and getting more companies listed there and I think over time therefore we feel more confident in pushing our asset allocation to own these companies in their domestic markets.

Wall: And you've got U.S. stocks, you've got Japanese stocks, you've got some German, France, some Hong Kong, some China. So, if you'd group them together, two of the largest regions you have exposure to are Europe as a whole and Japan, both of which have this backdrop now of negative interest rates and maybe even more cuts to come. How does that affect you as an income investor?

Crooke: It would be challenging if we just own bonds because in those markets, clearly as you say, negative interest rate means you're actually almost paying to store your money with banks. We're not; we're equity investors. And the equity market, I think, is being well-supported by the actions. So, the idea is to get companies to use their cash to invest and therefore, hopefully, create growth in the future. So, I think actually it's quite positive.

We try and look forward, not necessarily the next month, the next quarter, but one, two years out, where should we have our investments to yield a positive return for our investors over that timeframe. And I think both markets, Japan and Europe, will see strong dividend growth. We'll see recovery in earnings because of this government and central bank action. So, I'm positive on both regions for dividend growth as well.

Wall: Alex, thank you very much.

Crooke: It's a pleasure.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar