JEFF PRESTRIDGE: Law Debenture is big beast of investment jungle

Stock market-listed investment trust Law Debenture is a strange beast. It is part a conventional investment portfolio and part a legal business owned by the trust.

Although it is unlikely that such a combination would get off the ground today as an investment entity, it works as evidenced by the fact that it has been chugging along – very nicely thank you – for more than 133 years.

Change is simply not an option. Both the investments – managed by James Henderson and Laura Foll at Janus Henderson – and the legal business IPS (Independent Professional Services) are good for each other. Crucially, it works for the trust’s shareholders.

A few days ago, the £1 billion trust announced its 2022 financial results. While one year only gives a snapshot, it was a satisfactory set of numbers.

Although total returns for shareholders were meagre at 0.4 per cent, it delivered income in spades. During the year, it paid dividends totalling 30.5 pence a share, a 5.2 per cent increase on the year before.

It means the trust has clocked up 13 years of annual dividend growth – and 44 years of maintaining or increasing dividends.

All rather impressive, although the longer-term numbers look better. Over the past five years, the trust has delivered total shareholder returns of 82 per cent.

To put this into perspective, the FTSE All-Share Index has registered a return of 31 per cent over the same period.

The impact of IPS on the trust’s performance cannot be under-estimated. A big chunk of the income that the trust generated last year – 30 per cent – stemmed from IPS, a firm that has its fingers in many pies.

It makes its dosh from providing company secretarial services to big companies (in effect, ensuring corporates are doing everything by the book); acting as both a corporate bond and pension fund trustee; and providing whistleblowing services to companies, allowing employees to report corporate wrongdoing in confidence.

It’s a business mix that has delivered revenue growth through thick and thin (Covid, inflation and Liz Truss).

Accounting for a fifth of the trust’s assets, it provides a sound bedrock around which Henderson and Foll can build a complementary investment portfolio.

That portfolio comprises 145 stocks, most of which are listed in the UK. It includes the usual dividend-producing suspects – the likes of BP and Shell and banks Barclays, HSBC, Lloyds and NatWest – but a lot more besides.

Henderson, speaking to me from Kenya where he was busy enjoying encounters with elephants rather than his usual fare of FTSE 100 chief executives, defends the diverse portfolio on the grounds of risk mitigation.

‘If any company I hold cuts its dividend,’ he told me, ‘it’s not an issue. For example, when BP cut its dividend in 2020, it didn’t impact on the income Law Debenture was able to pay out to investors.

‘Indeed, the trust increased its dividend by 5.8 per cent.’ The rich income that IPS provides for the trust also allows Henderson to invest in companies in anticipation of them paying a dividend – for example, the banks in 2020.

It also permits him to invest a tiny slice of the portfolio in smaller companies that generate no income whatsoever – the likes of renewable energy company Ceres Power and oil and gas exploration company Deltic Energy.

Although both companies are currently loss making and have yet to pay any dividends, Henderson is sure they will prove shrewd investments – even if taken over by rivals.

Last week, I asked Denis Jackson, chief executive of Law Debenture, whether the trust would ever sell IPS, potentially generating a windfall for shareholders. He said it was a no-go. His view is that it’s a marriage made in heaven that has worked for 133 years – and he sees no reason why it can’t work for another 133.

Providing an annual income of around 3.6 per cent, plus the prospect of capital gains, Law Debenture represents a sound entry point for investors wanting exposure into the UK stock market.

Slightly quirky, yes. But potentially rewarding on a five-year time horizon. In investment terms, more of a Kenyan elephant (solid and dependable) than a tiger (volatile).

Now banks bulldoze services

Banks may be awash with dividends, but they’re rapidly depleting their arsenal of branches. A total of 722 have been shut – or put on notice of impending closure – since the start of last year and plenty more for sure will go before the end of the year is out.

Of those branches that remain, many of their services are being undermined by having their opening hours reduced. 

Even more disturbingly, access to counter-based services (for example, to pay in a cheque or make a cash withdrawal) is being restricted, forcing customers to use an ATM, paying-in machine or go online.

Walking down London’s Kensington High Street a few days ago, I was drawn to a sign on the window of the Barclays branch alerting passers-by to changes coming in from late June. 

These will result in a half-hour being lopped off the branch’s opening hours, every day from Monday through to Saturday afternoon. In addition, counter services will not be available on a Saturday and be withdrawn on a Monday to Friday a full two-and-a-half hours before the branch closes at 4.30pm.

‘Our opening hours are changing temporarily,’ the sign claims. It then says: ‘Even when your branch is closed your bank is still open – you can do most of your banking on the Barclays app.’

I would bet my pension on these temporary changes never being reversed. I would also not be surprised if the next step is either to close the branch – or make it cashless.

Heathrow fraudsters back with M&S scam

Last month, fraudsters used the good name of Heathrow to try to persuade people to take out sustainable bonds, allegedly paying premium fixed rates of interest (up to 7.125 per cent). We tipped off the airport’s owners, who alerted their cyber fraud team.

Scam: Fraudsters are using the name of Marks & Spencer to offer M&S sustainable bonds

But these fraudsters are determined people. They’re back, this time using the name of Marks & Spencer to offer M&S sustainable bonds paying – yes, you guessed it – 7.125 per cent.

Marks & Spencer has been tipped off. If you receive the M&S offering, let me know and delete it.

Clarity on equity is welcome

The equity release market has come a long way since the early 1990s when some customers got a God-awful deal from plan providers.

Helped by an influx of reputable financial brands into the sector – the likes of Aviva, Legal & General and building society Nationwide – equity release is now a product fit for purpose.

In its simplest terms, it enables homeowners to release some of the equity trapped in their property for everyday living. The equity, taken in one go or in slices, is accessed by a fixed-rate loan, with the interest usually rolling up rather than being paid every month. 

The debt is paid off through the sale of the home when the homeowner dies or goes into long-term care.

Last year, 50,000 new plans were taken out with the total amount lent reaching a record annual high of £6.2 billion.

Yet, equity release remains expensive and can be hard for many people (homeowners and their grown-up children) to get their brains around.

The Equity Release Council, the industry’s trade association, acknowledges these issues. It’s why it now wants companies to set out their charges in such a way that they are easy to understand (standardised and jargon-free) – and can be compared across providers.

I trust lenders will respond to this initiative positively. After all, it’s in their best interests – as well as those of their customers. Opaqueness breeds distrust while transparency engenders confidence.