Popular retail investment trust Merchants Trust (MRCH) plans to dip into its savings to protect shareholder payouts this year.
As one of around 20 so-called ‘Dividend Hero’ trusts, income comes top of investor’s priority list. Dividend Heroes are investment trusts that have raised their annual dividend each year for at least 20 years.
Shares in the investment trust dipped 1.2% in morning trade to 368p, off recent coronavirus lows of 302.5p but significantly below the stock's 400p to 550p five year range.
Merchants, run by Allianz Global Investors’ Simon Gergel, made it 38 years running after announcing a fourth quarter 6.8p per share dividend, to be paid on 29 May, raising the full year to 31 January 2020 payout 4.2% to 27.1p per share.
Simon Gergel, manager of Merchants Trust
Last year’s dividend increase is versus an average 1.8% inflation run rate, the trust said today.
‘We have this year provided one of the very highest yields in our peer group as part of an attractive total return for investors and we aim to continue to do so,’ said Colin Clark in his first full year statement as chairman.
Trustnet data suggests the income yield for the year ahead stands at 7.3%.
TOTAL RETURNS PERFORMANCE
The company's net asset value total return per share for the year through January rose 18.7%, compared to a 10.7% benchmark return, Merchants reported. Merchants delivered a share price total return of 17.9% between 1 February 2019 and 31 January 2020, according to Shares own calculations.
The company's biggest holdings at the end of January include drugs firm GlaxoSmithKline (GSK), oil giant Royal Dutch Shell (RDSB), and defence group BAE Systems (BA.), with tobacco and financials also prominent in the portfolio.
PAST EARNINGS SECURITY
‘The impact of COVID-19 is a very present shadow at the moment and, as we write, markets have produced sharply negative returns in the first weeks of our new financial year,’ said chairman Colin Clark.
‘There is clearly going to be a significant impact on the economy, corporate profitability and dividend income in addition to people's health.’
But Clark offered reassurance to shareholders that income protections are in place.
‘Merchants started the year in a strong position and the dividend was comfortably covered by last year's earnings,’ he said.
Clark added that ‘the ability of an investment trust to be able to smooth dividend payments by building up reserves following strong performance and draw upon them in more challenging years is a positive feature of our structure.’
‘We are as focused on dividends as you are,’ he said.
