UK Edition
When we changed our Income Portfolio drastically in the spring of last year after a string of dividend cancellations caused by the pandemic we were looking primarily for more secure sources of income. So far the assets we bought then, all investment trusts, have not disappointed. But if we step back from the crisis of Covid-19 we also need our income to keep up with inflation – and that means dividend increases.
It’s therefore a relief to report another divi rise from one of those new holdings now.
Residential Secure Income, which owns retirement and shared ownership homes, said last week that, in line with its aim to deliver inflation-linked returns, it was raising its dividend target for the current financial year, which runs to the end of September 2022, to 5.16p per share. Relative to this year’s 5pc a share the planned increase is 3.2pc, a fraction more than the 3.1pc rise in the consumer prices index in the year to September 2021.
The trust has already declared the first quarterly divi in line with the new target: 1.29p, to be paid on Jan 21 to shareholders on the register today. It said the 2021 dividend had been fully covered by recurring income in the final quarter of the financial year, which was “ahead of schedule”. Future dividend growth, it added, will be backed by inflation-linked rental income.
In addition to the dividend yield the trust aims to grow its per-share capital value modestly each year to produce a total return of at least 8pc. It achieved 7.5pc in the year to September.
The trust said occupancy of its shared ownership portfolio rose to almost 100pc while voids among its retirement homes fell to 7pc in the second half of its financial year, which was “in line with the pre-Covid-19 average”.
It said it had collected 99pc of rents due over the full year, a “resilient” figure “in line with normal economic conditions”. The trust is meeting our requirements to the letter.
Questor says: hold
Ticker: RESI
Share price at close: 108.5p
Update: Schroder Income Growth
This fund too managed to raise its dividend in the financial year to the end of August, although only by 1.6pc to 12.8p from 12.6p.
As a trust that invests in shares it had to grapple with that same spate of dividend cuts that hit our own portfolio in the wake of the virus’s arrival, so we can forgive it for that figure.
Last year too it restricted its divi increase to 1.6pc, but its record over the past 10 years gives us hope of better things in future: the dividend is about 40pc higher than in 2011, whereas to keep pace with inflation it only needed to rise by just over 20pc. The annual dividend has now risen for 26 consecutive years.
One of the reasons for our decision to hold on to Schroder Income Growth when we made all the other changes in spring last year was its large reserves, which investment trusts can build up in good times to support the dividend when things get tough.
The trust did call on those reserves to support this year’s dividend, but not by much: 94pc of the payment was covered by income received during the period, thanks to the recovery in dividends paid by its holdings.
It said its reserves remained “healthy” at £7.4m, which equates to about 84pc of the dividend paid this year. In other words, should further disaster befall us because of the virus or otherwise, future dividends can still be supported.
The trust increased its net asset value per share by 28.3pc over the year while total returns have comfortably beaten the FTSE All-Share index over the past decade. And the fund has become a little cheaper to own: the “ongoing charge” for the year to August was 0.79pc, compared with 0.86pc last time – the fifth consecutive annual fall.
This is another fund that’s punching its weight in our Income Portfolio.
Questor says: hold
Ticker: SCF
Share price at close: 303p
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