UK Edition
It’s a tale of two dividends from Questor’s twin British smaller companies trusts run by the same managers at Aberforth Partners.
Aberforth Smaller Companies, at £1.1bn the much larger of the two, last week defied the pervasive dividend gloom to announce a small rise in its ordinary annual payout to 33.3p, although last year’s 4p “special” is not being repeated.
Its smaller stablemate, the £122m Aberforth Split Level Income portfolio, hasn’t been able to avoid passing on dividend pain to shareholders, however. Last week, as it had warned in the summer, the trust announced a 0.92p first interim dividend, 39pc less than last year’s equivalent payout. This year’s second dividend, due in August, is likely to face a similar cut.
Both trusts suffered a severe fall in dividend income from their broadly similar portfolios of shares in British smaller companies. That’s not unique to them: dividends from London-listed smaller firms fell by 52pc last year, according to the London Business School, an even steeper fall than that registered by the FTSE 100’s blue-chip stocks.
But the two trusts differ in their level of reserves, the money held back from their dividend income in good years to support their own payouts in leaner times.
Aberforth Smaller Companies has drawn on relatively plentiful reserves, which even after funding 19.4p of the 33.3p payout this year will still amount to 1.7 times the annual payment. Aberforth Split Level Income, which listed more recently, has much less to fall back on.
Nearly half of its reserves were used to avoid a cut to last August’s 2.71p payment, leaving just 0.86p per share, not enough to achieve the same feat in 2021.
The shares of both trusts are also down from their level when we first tipped them in 2018: by 20.1pc in the case of Aberforth Split Level Income and 10.2pc for its larger stablemate.
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On both capital and income fronts, however, more recent signs have been encouraging for both trusts. Shares in both have rallied sharply since November’s vaccine breakthroughs, while some holdings that cancelled payouts last year, such as Wincanton and Morgan Advanced Materials, have returned to the dividend register.
Michael Stiasny, who holds the split trust in his M&G Charifund, is happy to keep holding. He likes the contrarian appeal of its “value” approach and focus on smaller companies, which have tended to do better than blue-chips.
He said dividends from those companies should continue to recover and in the meantime the trust’s likely payout this year would give a yield of around 4pc. “You’re still getting a very nice income, bearing in mind the FTSE All-Share yields about 3.3pc,” he said.
Peter Walls, manager of the Unicorn Mastertrust, has meanwhile held on to his stake in Aberforth Smaller Companies.
He acknowledged the lacklustre returns from both the trust and the broader London market over the past five years. But he has taken heart from the revival in fortunes in the last three months of 2020 and is keeping his shares “in the expectation of further outperformance over the coming year”.
We’ll hold both trusts.
Questor says: hold
Tickers: ASL, ASIT
Share prices at close: £12.26, 64p
Update: Oakley Capital Investments
Oakley Capital Investments last week reported a solid 14pc rise in the value of its assets in the second half of last year, continuing its strong run since we tipped the private equity trust in 2019.
The 30pc discount we identified as wide in view of the trust’s track record has narrowed only marginally to 26.9pc. That still strikes Questor as too wide for a portfolio that features the sort of fast-growing technology companies that command a much higher rating elsewhere.
Oakley’s trading update emphasises that focus: a dozen of the 17 companies held are delivering their products and services digitally; most are benefiting from the acceleration of this trend during the pandemic.
Questor suspects a holding in struggling Time Out and an unwise decision four years ago to issue new shares at a discount explain the stubborn discount.
But the company has committed not to repeat that mistake, while Time Out now represents a smaller portion of the portfolio, so continued strong performance should offset those problems.
Questor says: hold
Ticker: OCI
Share price at close: 294.5p
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