Inflation has passed its peak in the UK and the rate of price increases is now set to decline. Nevertheless, inflation is set to remain well above the low levels experienced for the last decade or more. In times such as these, securing income that beats inflation is harder than ever.

Higher inflation has in turn led to higher interest rates and many savers and investors may have hoped for higher rates from bank savings. But just as many have found those bank savings rates can still be disappointing. Banks have not passed on higher rates in full and achieving a savings account rate much above 4% is difficult, particularly if you are wary of locking away your savings for several years.

The Janus Henderson Investors City of London Investment Trust (CTY), which principally invests in FTSE listed equities, could be the solution.

Beating inflation over the business cycle

Dedicated to delivering secure and stable income and capital appreciation over the long term, we have been able to raise our dividend every year for the last 56 years.

In our last full year, we delivered a dividend growth of 2.6%. That may not have beaten inflation in the last 12 months, but the consistent growth of our dividends over many years means we have trounced inflation over the longer term. Over the last 10 years, dividends from CTY have risen by 41.2%, while the cumulative effect of inflation, as measured by the Consumer Price Index (CPI), has been just 26.5%.

This consistent dividend growth is the key to our success and the long-term inflation-beating value we have delivered for investors.

There are two elements to this success. The first has been our strategy of low risk diversified investment in blue chip companies. Our top five holdings, for example, are Shell, Unilever, HSBC, BAE Systems and British American Tobacco. Our investments are overwhelming UK-based but, as these names illustrate, they are often global businesses, meaning their sales and profits are not linked solely to the UK economy or the value of the pound, and can benefit from growth in other markets as well.

Of course, even the most reliable global businesses face tough times, such as an economic slowdown or an unpredictable crisis such as the Covid-19 pandemic. In such difficult periods, earnings from even blue-chip companies can fall.

This is where the second factor in CTY’s success comes into play – the investment trust structure – which allows us to smooth dividend payments and create consistent income growth for our investors.

Our dividends were even immune to Covid-19

An investment trust can set aside some of its earnings during the good times in a cash reserve. CTY has always built its reserves during good times. Thanks to this disciplined approach, CTY has been able to draw on those reserves to keep increasing our dividend, even when companies are cutting theirs.

Between 2013 and 2019, the investment trust’s earnings per share (dividends from the companies in which we were invested) rose steadily. CTY paid out most of these earnings as dividends to our own shareholders but held back a small proportion to build up reserves. Then in 2020 as the pandemic took its toll on business, its earnings per share fell sharply as companies slashed their dividends. But, thanks to our prudent building up of reserves, we were able to keep on increasing dividends for our own shareholders.

As the economic effects of Covid-19 have faded, earnings from our investments have begun to rise and we have been able to pay back into those reserves, helping to secure future dividends.

Our dedication to secure and stable dividends as well as constant dividend growth has delivered rising income to our investors and allowed them to stay far ahead of inflation over the long term.

Discrete Performance Table

Disclaimers:

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

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