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Laura Foll at the AIC Investment Company Showcase

CTY

The City of London Investment Trust plc

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The unmatched consistency of UK dividends: City of London Investment Trust

While the UK market is having a moment in the sun, investors in The City of London Investment Trust have long benefitted from a standout dividend history…

In the summer of 2024, the sun has shone on the UK – at least from a stock picker’s perspective.

A decisive outcome for July’s general election is expected to have provided a degree of political stability, in contrast to other European countries. The Bank of England has begun the slow process of unwinding its 5%+ interest rates. This followed CPI inflation gliding back to the targeted 2% range in the Spring, with July’s slight rise the first real hiccup in the process.

In combination, this wave of good news has driven the FTSE 100 over 7% higher since the start of the year.

This moment in the sun follows a period that had some headlines asking what the FTSE 100 is actually for. And yes, the index has lagged its peers in stock price terms over multiple years. This has in turn encouraged some companies to list on other markets. However, as income investors know, there is one area where the UK’s market consistently stands out, regardless of the noise surrounding it (unless that noise is a global pandemic).

For income, the UK stock market is striking, in terms of longevity and consistency. Since 2002, the FTSE 100 has yielded between 3% and 4.5% each year. In the same period, the S&P 500 has averaged a dividend yield below 2%, save for the 2008-9 period when the yield climbed above 3% on the back of a collapse in share prices. The gap has only widened since the financial crisis.For income, the UK stock market is striking, in terms of longevity and consistency.

Investors in The City of London Investment Trust have benefitted from similar consistency. The trust has yielded above 3% since 2002 and over the last five years (to 19 August 2024) has yielded above 4%.

To achieve a consistent yield, with a compound annual growth rate of 3.4% over the last ten years, the trust has made sensible use of the investment trust structure. This includes using revenue reserves to ‘top up’ investors’ dividends in 2020 when dividends in the UK fell by 38% amid the uncertainty of the pandemic – happily, these have now recovered.

Another tool available to the trust is gearing. Simply put, this means borrowing money to fund additional investments when needed. This borrowing can attract lower rates than retail loans as the trust negotiates long-term financing options ahead of time. At times when market valuations are particularly attractive, this has proven a prudent choice in the past – although it does increase risk. Currently, the trust’s gearing sits at around 7%.

A final aspect of CTY’s consistent dividend yield has been its active management. Simply put, the trust has yielded more than the index in the majority of the last 10 years – which can be attributed to actively investing in only a select group of the FTSE 100 and in stocks listed outside it.

To find out more about The City of London Investment Trust click here.

There is no guarantee that past trends will continue, or forecasts will be realised.

Source: Morningstar as at 30/06/2024. Past performance does not predict future returns.

Consumer price index (CPI)

A measure that examines the price change of a basket of consumer goods and services over time. It is used to estimate inflation. ‘Headline’ CPI inflation is a calculation of total inflation in an economy, and includes items such as food and energy, where prices tend to be more volatile. ‘Core’ CPI inflation is a measure of inflation that excludes transitory/volatile items such as food and energy.

Dividend

A variable discretionary payment made by a company to its shareholders.

Gearing

Gearing is a measure of a company’s debt relative to its equity, showing how far its operations are funded by lenders versus shareholders. Investment trusts: The effect of borrowing money for investment purposes (financial gearing). The amount a company can “gear” is the amount it can borrow in order to invest.

Index

A statistical measure of group of basket of securities, or other financial instruments. For example, the S&P 500 Index indicates the performance of the largest 500 US companies’ stocks. Each index has its own calculation method, usually expressed as a change from a base value.

Inflation

The rate at which the prices of goods and services are rising in an economy. The Consumer Price Index (CPI) and Retail Price Index (RPI) are two common measures. The opposite of deflation.

Investment trust

An investment trust is a form of investment fund, specifically a publicly traded collective investment scheme that invests its shareholders’ money in the shares of other companies.

Share price

The price to purchase (or sell) one share in a company, not including fees or taxes.

Underlying yield

The underlying yield calculates the annualised income of a fund, including expenses, as a percentage of the unit price. It provides a snapshot of the fund at the given date, as an indicator of the potential income that investors they could expect to receive. It is not guaranteed and does not include any tax that investors may be liable to pay.

Disclaimer

Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK  Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and  Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial  Conduct Authority), Tabula Investment Management Limited (reg. no. 11286661 at 6th Floor, 55 Strand London WC2N 5LR and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 78, Avenue de la Liberté, L-1930 Luxembourg, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc

Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
  • Some of the investments in this portfolio are in smaller company shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
  • The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
  • Some of the investments in this portfolio are in smaller company shares. They may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
  • The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.