SCOTTISH AMERICAN INVESTMENT COMPANY: The trust that’s delivered a 48-year record on resilient dividends
Barring a global economic calamity in the next month or so, investment trust Scottish American will, early in the New Year, announce its 48th year of consecutive annual dividend increases.
It’s a tremendous income record that has only been bettered by a handful of rival funds including City of London, Bankers and Alliance.
The £940million trust, managed by Scottish investment house Baillie Gifford, has already paid out three quarterly dividends to shareholders for the current calendar year, totalling 9.3 pence a share – a 3.3 per cent increase on the equivalent payments made last year.
And with the trust’s objective being one of delivering real income growth – above inflation – the final payment that will be announced after the trust’s board meets in February could be higher than the 3 pence paid last year.
Inflation in the UK is currently running at a ten-year high of 5.1 per cent. ‘2021 is going to be another year o f dividend growth,’ says James Dow, who runs the trust with colleague Toby Ross.
‘The key question is by how much we raise the annual dividend.’
Shares in the trust ended last week at about £5.35.
Dow says the trust’s whole modus operandi is built around hunting down companies that can deliver ‘resilient’ earnings – and by implication resilient dividends.
All bar one of the trust’s 61 equity holdings are income generating – and these are supported by a small income-orientated property portfolio (managed by Olim Property and accounting for seven per cent of the trust’s assets) and a couple of infrastructure investments that also throw off income.
The trust’s dividend resilience was proven last year when, against the backdrop of a global collapse in company dividends, Scottish American managed to push up the income payments to its shareholders by one per cent.
Like many investment trusts, it was able to tap into its income reserves built up over many years to support the 2020 dividends paid to investors, although Dow says it still leaves the fund with nearly two thirds of a year’s income in reserve. Dow says the search for dividend-resilient companies takes it to Denmark (pharmaceutical giant Novo Nordisk); Brazil (B3, owner of the Brazilian Stock Exchange); and invariably the United States (Procter & Gamble).
The key, he says, is not to chase bumper payouts. ‘We do not buy companies which provide the highest dividend yield on their shares,’ he explains. ‘We prefer businesses that offer a lower yield, but which are able to deliver dividends through thick and thin.’ Novo Nordisk, says Dow, is a classic Scottish American holding. It offers a low dividend equivalent to just over one per cent, but the potential for strong dividend growth over the next five years on the back of the success of the appetite suppressants it has developed to combat obesity. Although the trust is somewhat overshadowed by the £19.6billion global fund Scottish Mortgage that Baillie Gifford also runs, Dow is not intimidated.
‘We offer a vehicle whose share price is less volatile than Scottish Mortgage’s,’ he argues. ‘We’re steadier and we provide a solid income stream.’
Scottish American has enjoyed five-year returns of 91 per cent. These are modest when set against those achieved by Scottish Mortgage (332 per cent), but better than many global equity income rivals such as Securities Trust of Scotland (66 per cent) and Invesco Global Equity Income (57 per cent). The trust’s stock market identification code is 0787369 and its ticker is SAIN. The annual charges total 0.7 per cent.