Introduction
60 years of consecutive dividend growth is the result of thousands of investment decisions made over decades.
To mark this milestone, fund managers Job Curtis and David Smith look back on philosophy and discipline behind one of the UK’s most enduring income records.
Question: 60 consecutive years of dividend growth through multiple recessions, a financial crisis, a pandemic. What does that number actually mean for shareholders?
Answer: Well, of course it means that City of London’s shareholders received an annual increase in their dividend each of those 60 years, and we’re the first investment trust to achieve that.
And if you think during that period, there have been some difficult times for the UK.
You had the high inflation and strikes during the 1970s, the 1987 global stock market crash, and the global financial crisis between 2007 and 2009, and of course, COVID in 2020.
And during all those periods, City of London increased its dividend each year.
Question: Walk us through how you manage the portfolio to keep that streak alive, even in years when markets fall. What’s the discipline behind it?
Answer: Well, I think there’s three key factors to that.
Firstly, it’s a focus on cash generative businesses that can not only pay an attractive dividend, but also invest in their business so they grow profits, cash flows, and ultimately dividends into the very long term.
Secondly, it’s about having a well-diversified portfolio, so not being over-reliant on any one sector or stock to produce your income needs.
And then finally, it’s about utilising the investment trust structure and using revenue reserves in the more difficult years.
Question: So you use the revenue reserves to smooth dividends in tough years. Can you explain that in plain terms and give a sense of when it’s mattered?
Answer: Yes.
It means that in the good years for dividends, we can save some of the investment income, up to 15%, and we put it into revenue reserves.
In the difficult times, such as in 2020 during COVID, when FTSE 100 companies cut their dividends by 36%, we’re able to use the revenue reserve to continue growing City’s dividend, as we did in 2020.
Question: Job, having run the trust yourself for over three decades of that 60-year history, what’s stayed consistent in the approach, even as markets have changed around you?
Answer: Yes, there’ve been big changes in markets and technology over the decades, but our investment approach has remained the same, as David outlined.
We are valuation conscious, and we’re conservative in our approach and believe in diversification.
And those principles, we retain to today.
Question: With markets feeling uncertain right now, why does an income-focused strategy like this matter to someone investing today?
Answer: For long-term investors, studies have shown that dividend yield and dividend growth are your main contributors to total return.
So invariably, markets will go through volatile times.
There will always be uncertainties.
But a focus on income and income growth, as City’s track record has shown, has actually proved successful for shareholders over the longer term.
Question: If you had to sum up in one sentence what this milestone means for a shareholder who’s held the trust for years, what would you say?
Answer: It means annual dividend increases for each of the last 60 years, as well as some good long-term capital appreciation, achieved through a consistent investment approach.