UK Edition
If the whole country is locked down again, how will our Income Portfolio perform? Can we hope that our dividends and interest will be unaffected?
The question comes to the fore as countries in Europe announce tougher restrictions to combat the virus and people here start to wonder if it’s only a matter of time before we follow suit.
We need not worry about our bonds in the event of another lockdown, because only insolvency or severe financial difficulty would affect the interest they pay.
Likewise the property and infrastructure investment trusts added to the portfolio in April specifically for the resilience of their income are causing Questor no sleepless nights (we update on one of them, Triple Point Social Housing, below).
The same goes for the specialist trust that lends to drugs companies that we advised readers to buy at the same time.
Our equity investment trusts largely have healthy reserves that would allow them to maintain their dividends even if the income they receive from their holdings remains far below normal levels, as seems likely if a renewed lockdown prompts companies to keep hold of all the cash they can.
The reserves will not last forever, of course, but we should be spared any cuts from our trusts, by this column’s reckoning, for six months to a year. Beyond that, it will depend on the state of the pandemic.
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The portfolio’s two venture capital trusts pay divis from the sale of holdings and aim to pay a fixed percentage of their net asset value.
Our two remaining London-listed individual firms, National Grid and Legal & General, have maintained dividends so far. We think they will be sufficiently insulated if the economy is forced to slow again.
All told, we are confident that our income is safe for the moment at least.
Update: Triple Point Social Housing
Although we added this trust to the Income Portfolio in April we had tipped it previously in our Investment Trust Bargain column when the shares looked cheap as a result of observations about the social housing sector from its regulator that troubled some investors.
While the regulator’s intervention allowed us to recommend the trust at a good price, less welcome is renewed attention from the same watchdog now that we actually own the fund.
Mercifully, the effect on its share price was minimal this time, largely because it had very small exposure to one of the two social housing organisations that had aroused the regulator’s concern and none at all to the other.
Better still, the properties that Triple Point leases to the housing association in question, Westmoreland Supported Housing, are being transferred to another organisation, a process that Triple Point said it expected to be completed “shortly”.
We expect the trust to remain a reliable generator of dividends. Hold.
Questor says: hold
Ticker: SOHO
Share price at close: 104.5p
Update: Regional Reit
Of all the companies whose share price you would expect to have recovered well from the lows of mid-March, a property trust that focuses on essential industries and has collected about 96pc of rents would be near the top of the list.
Yet shares in Regional Reit, which has just those characteristics, are not far from their 55.8p nadir of March 19: they closed last night at 60p.
At that price they yield precisely 10pc if the trust pays this year’s remaining two quarterly dividends at the new level it announced when it cut its divi in August. The market seems to be saying that even the new, lower dividend is unsustainable.
This column begs to differ.
The trust’s rent collection numbers speak for themselves and its dividend should now be fully covered by earnings.
Either investors expect the second wave to inflict greater damage, extending even to Regional’s defensive tenants, or they have had their heads turned by more exciting opportunities in, say, American technology stocks.
Whatever the reason, Questor sees this as a wonderful opportunity for readers who have spare cash to lock in what amounts to a stratospheric yield – 100 times Bank Rate, no less.
Questor says: buy
Ticker: RGL
Share price at close: 60p
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.