Questor: this trust has the reserves to survive three years of dividend drought

Reserves that could be used to support the trust’s dividend during the pandemic were behind our decision a year ago to add JP Morgan Claverhouse to our Income Portfolio at the expense of Invesco Income Growth. Its annual report, published last month, gave us an update on the state of those reserves.

The trust said that, following payment of the fourth quarterly dividend, its reserves would amount to £15.8m or 27.1p per share. This compared with £19.6m or 34.4p a share in 2019.

The total dividend for 2020 was 29.5p, up from 29p, as we have reported previously. So the current reserves would be enough to pay 92pc of the next annual dividend if it was left unchanged.

Use of the reserves to pay that 29.5p full-year dividend for 2020 was necessary because the trust’s income per share was just 23.2p, compared with 31.1p in 2019, as a result of dividend cuts made by the companies it holds. The gap between what it received and what it paid out was 7.9p.

The remaining reserves exceed this figure by almost three and a half times, which suggests that the current annual dividend could be maintained for three more years even if the dividends received by the trust failed to recover from their depressed levels of 2020.

We do of course expect such a recovery as the economy gathers strength from the easing of coronavirus restrictions and as a result we can be very confident that Claverhouse will maintain a record of annual increases in its divi that has so far lasted 48 years.

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As a nod in that direction it said in the annual report that it intended to raise this year’s first three quarterly dividends from 6.5p to 7p a share.

The trust’s managers, William Meadon and Callum Abbot, said: “After a disappointing 2020, UK equities now look very good value compared to both their own history and to most overseas markets. As the vaccination programme continues apace and confidence about an opening of the economy builds, we believe that this value will soon be realised.”

They said their optimism was reflected in the trust’s level of gearing (or borrowing) of 12.6pc at the time of writing their report. This use of (cheap) borrowed money should amplify any gains made if the managers are right.

Questor certainly believes that the London market has further to go, not least because it has been shunned for years by international investors who may think again now that Brexit has finally been concluded and our vaccination programme has been so successful.

Questor says: hold

Ticker: JCH

Share price at close: 724p

Update: Residential Secure Income

Reassurance about dividend sustainability also came earlier this month from “Resi”, which is the owner of social housing offered by some local authorities and housing associations.

In a trading update it said it had fully deployed its cash thanks to the acquisition of 191 shared ownership homes from a housing association for £16m. This took the value of its portfolio to £345m.

The trust said the “improved earnings position” that arose from being fully invested and from “ongoing operational improvements” meant it expected to reach full dividend coverage in July.

Resi remains a stable source of inflation-linked income. 

Questor says: hold

Ticker: RESI

Share price at close: 97.8p

Update: Regional Reit

During the pandemic we have been keeping a close eye on property funds’ rent collection statistics for any sign that their income has suffered from tenants being unable to pay their rent. Any shortfalls could of course end up affecting our dividends.

Last week Regional said it had collected 90.4pc of rent due for the first quarter of the year. It broke this figure down into 84.8pc received in the normal way, monthly (as opposed to quarterly) payments for 2.9pc of the total and agreed collection plans in place in relation to a further 2.7pc. It said the figure of 84.8pc compared favourably with 83.8pc for the same period in 2020.

Stephen Inglis, the head of the fund’s management firm, said: “We are beginning to see increasing levels of activity across our portfolio, particularly in letting inquires.”

Questor says: hold

Ticker: RGL

Share price at close: 83.3p

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