Widely-held global fund Alliance Trust (ATST) has reset its dividend at a higher level and now expects to pay a 19.054p total dividend for 2021, a bumper 32.5% increase on 2020’s shareholder reward.
Having concluded a review of the level and funding of its payout, Alliance Trust’s board believes that an increased, yet still sustainable, level of dividend will benefit existing shareholders and enhance the attractiveness of the trust’s shares.
Significantly, this reset dividend is supported by ‘significant’ distributable reserves, which amounted to more than £3.3 billion as at 30 June 2021.
HIGHER DIVIDEND ALREADY EXPECTED
At the interim results in July, Alliance Trust announced that it was reviewing its dividend policy.
As Shares previously explained here, earlier this year, the company was granted court approval to convert its £645 million ‘merger reserve’ into distributable reserves, so a higher dividend strategy was expected by the market.
Alliance Trust’s shares have rallied strongly year-to-date, which perhaps explains why today’s price gain proved modest, with the stock ticking up 0.8% to £10.40 on the dividend reset declaration.
The trust’s third interim dividend for 2021 has been reset at an increased level of 5.825p, a 62% increase over last year’s corresponding payout, with 2021’s fourth interim dividend expected to be declared at the same level, meaning Alliance Trust is on track to hike 2021’s total dividend by 32.5% year-on-year.
From this reset level, the AIC ‘Dividend Hero’ with 54 consecutive years of rising dividends under it belt, expects to continue to extend its enviable dividend growth track record for 2022 and beyond.
‘Shareholder feedback has indicated that there is support for a higher dividend, as long as it is sustainable and affordable,’ explained Alliance Trust’s chairman Gregor Stewart.
‘The expected recovery in the income from the portfolio and flexibility afforded by our extensive and recently enhanced distributable reserves means that an increased level is affordable and that our track record of annual dividend increases can be sustained. We have therefore decided to reset the dividend to a more attractive level.’
Stewart continued: ‘Combined with strong investment performance, we believe resetting our dividend will reinforce Alliance Trust’s position as an attractive core global equity investment, providing shareholders with a real return through a combination of capital growth and a rising dividend.’
Alliance Trust was at pains to point out the reset will not result in ‘any change to the company’s dividend policy, nor to its investment objective or its global equity, multi-stock picker investment strategy’.
For the uninitiated, Alliance Trust invests globally under a ‘manager of managers’ approach. This which blends the top stock selections of some of the world’s best active managers, as rated by Willis Towers Watson, into a single diversified portfolio.
Alliance Trust stressed it will continue to take advantage of the investment trust structure to use both its investment income and distributable reserves to fund dividend payments.
THE STIFEL VIEW
Analysts at Stifel said it is important to note that ‘the dividend for the year to December 2020 was significantly uncovered by revenue earnings per share at 0.78 times, compared with 1.02 times cover in 2019. Despite this the board increased the dividend by 3% for the year to December 2020, covering the shortfall with the trust’s substantial revenue reserves.
‘We would expect the increased dividend announced today to also be uncovered by revenue earnings. By way of illustration, if a dividend paid is uncovered by earnings, with a 10p per share shortfall, this has to be funded by an effective 10p reduction in the net asset value, than would otherwise be the case if the dividend was fully covered by earnings.’
