City of London skyline
Strong income growth generates record revenue earnings / Image source: Adobe
  • Trust underperforms benchmark
  • Dividend increased for 42nd consecutive year
  • Manager positive on outlook

Merchants Trust (MRCH) served up a 42nd consecutive year of higher dividends, up 2.9% to 28.4p per share, but the portfolio fell 3.1% for the year, lagging the FTSE All-Share’s total return of 1.9%.

Chairman Colin Clark described the performance as ‘very disappointing’ but stressed that the result ‘comes after two very good years when the portfolio outperformed the benchmark and we recognise that the longer term (3 and 5 year) track record of the trust is extremely strong.

‘For a value-oriented investor, a run of poor relative performance can often reflect simple under-pricing of particular types of companies, or certain cyclical sectors.

‘With any disciplined, active management investment approach, there will always be periods when it is difficult to outperform the benchmark if the strongest performance comes from the areas of the market that do not meet the portfolio manager's investment criteria.’

In early trading the shares were unchanged at 526.1p, leaving them down around 5% since the start of the year.


More encouragingly, the portfolio generated a strong year of income growth with revenue earnings per ordinary share rising 6.3% to a record 30.5p, which means the trust has fully recovered from the impact of the pandemic.

The annual dividend declared was fully covered by earnings as well as adding 1.8p per ordinary share to revenue reserves.

One of the attractions of investment trusts is their ability to build revenue reserves in good years, which means they can maintain dividends to shareholders when dividend receipts from portfolio investments are weak.

Clark said the board’s priority was to build up reserves once again. At the end of January, the revenue reserve stood at 18.1p per share.

The trust has delivered an annualised growth rate in dividends of 6.4% a year over the last 42 years, comfortably ahead of inflation over the same period.

Merchants continues to pay a high dividend as seen in the yield of 5.2% at the period end, well above the sector average of 4.5%, placing the trust in the top 10-yielders in the sector.

Looking ahead, the company noted the ‘negative sentiment’ overshadowing the UK market while the investment manager sees ‘considerable’ pent-up value in the market.

The manager’s value tilt and ‘glass half full’ attitude to the current UK market outlook leaves the board confident that the current investment approach is ‘well suited to meeting Merchants’ stated objectives for shareholders over the long term.’


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Issue Date: 04 Apr 2024