SCHRODER INCOME GROWTH: Dividend hero that backs the best of British is aiming for 26 years of growth
The manager of investment trust Schroder Income Growth is confident the fund can live up to its name in the coming weeks by confirming another year of dividend growth.
The £212million stock market-listed trust is one of just 18 funds that has defied market shocks and dividend droughts by growing the annual income it pays shareholders for more than 20 years.
In Schroder’s case, the trust is hoping to make it 26 consecutive years of annual dividend growth when it announces the size of its final quarterly payment for the financial year ending August 30 later this year.
Having already paid shareholders 7.5p (the same as last year), it needs to pay more than 5.1p to stretch 25 to 26.
Sue Noffke, head of UK equities at Schroders, is manager of the trust that draws more than 80 per cent of its dividends from UK-listed companies. She feels ‘confident’ about the trust increasing its annual dividend again, despite ‘challenges’.
Noffke says: ‘We’re very proud of our dividend history and our dividend hero status’ – a reference to the label given to trusts with more than 20 years of dividend growth by the investment trust industry’s flag waver, the Association of Investment Companies.
In the previous financial year to the end of August 2020, the trust drew on its stash of income reserves to ensure its annual dividend income payment to shareholders went up – by a tad over 1.6 per cent.
This arsenal, equivalent to just short of a year’s dividend, is income earned in the past from its holdings, but not paid out. It’s used to top up shareholders’ income when dividend conditions are difficult as they have been in the wake of the pandemic.
On the outlook for UK dividends generally, Noffke says, ‘the UK stock market is still the place for investors to go to for income’.
Over the past year, Noffke has altered the trust’s portfolio, in part a result of the takeover of some of its key holdings by rival companies – bookmaker William Hill (bought by UK-listed 888 Holdings); infrastructure company John Laing (acquired by private equity group KKR); and security group G4S, which was purchased by American rival Allied Universal.
The cash from these takeovers – plus that generated from other portfolio disposals, such as stakes in tobacco giant BAT and energy company Galp Energia – has been employed to build new stakes in an array of companies.
These include construction giant Balfour Beatty, BT, private equity specialist Bridgepoint, healthcare company ConvaTec, energy business Drax and building materials supplier Travis Perkins.
Often, the acquisitions have been driven by Noffke’s belief in the quality of new management brought in to revitalise a company’s fortunes.
This is very much the case at ConvaTec, a leader in areas such as advanced wound care and ostomy care. ‘It’s a supplier of low-value items such as colostomy bags,’ she says.
‘What I like about its business model is that customers become lifetime customers. But the big plus for us as an investor is the chairman John McAdam, who we know from his time at Rentokil. We trust him to point ConvaTec in the right direction.’
Schroder Income Growth has outperformed the FTSE All-Share Index over the past one, three and five years with respective overall returns of 36, 21 and 49 per cent.
Its stock market identification code is 0791586 and market ticker is SCF. Annual charges are 0.86 per cent. Other AIC ‘dividend heroes’ include trusts Alliance, Bankers and City of London.