Well-established fund The Merchants Trust (MRCH) announces a 36th consecutive increase in the dividend, further cementing its position as an income stalwart.
Merchants, established back in 1889 by some of the leading financiers and lawyers of the day and which has navigated a variety of market conditions and several world wars, is one of the Association of Investment Companies’ (AIC) ‘Dividend Heroes’, an elite group of investment trusts that have hiked their shareholder rewards each year for 20 years or more.
DISTINGUISHED DIVIDEND RECORD
For the year to January, Merchants is proposing a 2.5% rise in the total dividend to 24.8p, extending its formidable dividend growth track record to 36 years.
This was a successful year for the trust, up 3p to 471p today, which outperformed the FTSE All-Share with a 14.5% net asset value total return (versus 11.3% for the aforementioned benchmark).
According to the AIC website, Merchants currently offers the third highest yield in its UK Equity Income sector at 5.3%.
Managed by Allianz Global Investors’ Simon Gergel (pictured below), who mainly scours the FTSE 100 and to a lesser extent the FTSE 250 for stocks with strong franchises and sound finances, Merchants has consistently offered shareholders a high yield and dividends that have grown ahead of inflation over the long term.
The company says ‘this period under review was generally a good year for the level of dividend receipts generated by Merchants' portfolio holdings.
'In addition, the weakness of sterling against the US dollar early in the year (which has now reversed) helped, since almost a third of income comes from dividends paid in foreign currencies. The improved level of income generation, and the benefits of debt refinancing, have allowed the directors to raise the dividend by a greater amount than in recent years.’
STRONG CASH FLOWS, SOLID FUNDAMENTALS
Dividends sit front and centre of the investment trust’s investment policy, yet beyond income attractions, as Gergel recently informed Shares, Merchants looks for companies with strong cash flows and good fundamentals.
‘I look at their balance sheets and management and I also look to pay a reasonable price for the shares,’ added the seasoned stockpicker, whose latest available top ten reveals holdings in oil major Royal Dutch Shell (RDSB), drugs giant GlaxoSmithKline (GSK), British defence behemoth BAE Systems (BA.) and Lloyds Banking (LLOY).
