Income for the ages
If the last year has taught income investors anything, it’s that consistency is key. Regardless of the application of your income, being able to count on its relative reliability is invaluable for many investors, with immediate needs like tuition fees or simply the costs of daily living that do not go down regardless of the economic climate. .
The challenges of finding reliable revenue have been laid bare in 2020. Many companies have slashed dividends as the Covid-19 pandemic has prompted governments to lock down entire economies, leaving revenues uncertain. This had a clear ripple effect for many investors, especially in the UK where, before the crisis, 37% of all dividends came from just five companies and 51% from 10.
The income advantage
Investment trusts are uniquely positioned to provide investment income. Their closed structure means they are unaffected by daily entries and exits, allowing their managers to invest with confidence for the long term.
Their boards are also able to withhold a portion of their investment profits and distribution income each year. This in turn allows them to “smooth out” payments in years of declining income, as was the case for many last year.
As a result, investment trusts are among the most reliable providers of income available to investors, with one select group – AIC’s Dividend Heroes – achieving records in terms of consistent dividend growth over several decades.
Such confidence is Brunner (BUT), which has a combined growth and income mandate, and has increased its dividend for 49 consecutive years, including in 2020, which places it among the top 10 trusts with the longest back-to-back dividend increases. Underpinning this track record is a strong and proven investment philosophy that should protect
this recording in the future.
Investing for income (growth)
Brunner has large reserves of income, which we estimate to be around 1.2 times his dividend for the year 2020. Nonetheless, the managers of the trust do not depend on these reserves and are actively seeking to increase income. and the trust’s capital returns from year to year, accumulating these reserves over time.
Importantly, the team takes a balanced approach to investing throughout the cycle, seeking to achieve both income and capital growth from their underlying portfolio. This means they don’t need to invest in the world’s biggest dividend payers – who often lack growth prospects – to meet their income obligations.
Instead, the team is focused on identifying high quality companies with established, profitable business models that have additional room for growth, typically with very strong balance sheets.
The strength of this approach was demonstrated in 2020. Although the trust ultimately had to dip into its reserves to pay its dividend, managers say its underlying income has held up well and is already recovering strongly. More importantly, the focus on the quality and strength of the balance sheet has kept the portfolio away from most of the really painful dividend cuts.
At the same time, by focusing only on established and highly profitable companies, the team avoided more speculative stocks that saw massive sales in the last quarter of 2020 and the first months of 2021.
Brunner’s consistency – and its truly differentiated portfolio – already make it an interesting proposition. However, it also currently sits on the fourth largest haircut in the AIC Global industry, despite credible one- and five-year stock price returns and a strong average dividend yield.
This combination of a healthy dividend yield and robust stock returns is unusual in the industry and means that investors can access a unique global investment security at a price.
fraction of its actual value.
Brunner Investment Trust is a client of Kepler Trust Intelligence. The information produced by Kepler Trust Intelligence should be regarded as factual information only and not
an indication as to whether or not to invest in the security under discussion. Kepler Partners LLP is a limited liability company registered in England and
Wales at 9/10 Savile Row, London W1S 3PF with registration number OC33477
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