Gold-rated Trust Grows Dividend for 50 Years

Despite a challenging backdrop for income investing City of London Trust has grown its dividend for 50 years - what has fuelled this income?

Emma Wall 31 May, 2016 | 11:14AM
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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 Job Curtis, manager of the City of London Trust (CTY).

Hello Job.

Job Curtis: Good morning.

Wall: So congratulations; we've just had an anniversary of 50 years of rising dividends for the trust. You contributed for a number of those years to that track record. Has it been through stock selection or has it been through that theme that’s only available to trust, which is holding a bit of cash back in good years and then deploying it in perhaps less successful years.

Curtis: It's been a bit of both Emma. I think the core of our portfolio being some very consistent dividend growth, such as our biggest holding British American Tobacco (BATS) particularly in the consumer staples area. We've got in our top 10 also Unilever and Diageo and Imperial Brands in that category. But certainly the investment trust structures help that we don’t have to distribute all our dividend in any one year. So we can build up a revenue reserve and in the difficult years we've had to draw on that reserve and that’s been very helpful. So certainly the investment trust structure has been crucial as well as the stock selection.

Wall: Because income has been challenged in recent years, hasn’t it? Because certain big players such as financials and miners have come off the table and indeed low growth, low income is just a feature of this sort of part in the market cycle. You have the opportunity within the trust to look outside the FTSE 100, you have a mid-cap allocation and you also have an overseas allocation. Are you using those options more at the moment?

Curtis: Yes, we've got about 21% in mid-cap and we've got about 11.5% in overseas. So there about the overseas is slightly higher than it has been. But the mid-cap is about where it has been for few years. I mean certainly within the FTSE there is also a plenty of dividend growth. I mean there are some high profile dividend cuts particularly the mining sector. This year, which was hardly a surprise given that where commodity prices are.

But there have also been plenty of special dividends I mean we can think of companies such as ITV (ITV) or Hiscox (HSX) and Direct Line (DLG) all doing special dividends within our portfolio. And even in the banking sector although there was a dividend cut from Barclays (BARC), Lloyds (LLOY) came through with a special dividend. So bad news tends to be accentuated as that was the case. But there has been plenty of good news as well across the market.

Wall: You mentioned miners there perhaps as a sector that hasn’t done so well. Are there other sectors that you are looking to at the moment at this point of the market sector, this market cycle rather which are looking exciting opportunities for you.

Curtis: Exciting opportunities we are holding a pretty diverse portfolio. But we still think the housebuilders, from an income point of view look pretty attractive. I think there is a lot of demand for housing in our country. I think there is a shortage of houses and so that’s a sector we hold Taylor Wimpey (TW.), Persimmon (PSN) and Berkeley Group (BKG) and they have all got long land banks and we think that’s got a lot of potential for dividends in that sector.

Wall: So despite all the bad news you think there is every hope that it could be another 50 years of dividend growth for the City of London Trust?

Curtis: I very much hope so, I think given the investment trust structure and hope – the markets you know equities can go up and down. You can't be certain about equities. I mean many of them have volatile asset class. But we think we are very confident we can build on the foundations that have been laid.

Wall: Job thank you very much.

Curtis: 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