31st Mar 2016 11:13
LONDON (Alliance News) - Merchants Trust PLC, the UK equities investment trust managed by Allianz Global Investors, on Thursday increased its annual dividend for the 34th consecutive year, declaring a final dividend of 6.0 pence per share to boost the total payment by 0.8% to 24.0p.
Investing mainly in higher yielding UK FTSE 100 companies, the trust's objective is to provide an above average level of income, income growth and long-term capital growth. As of January 31, the end of its most recently ended financial year, its top three equity holdings were pharmaceutical giant GlaxoSmithKline PLC, oil major Royal Dutch Shell's 'B' shares, and HSBC Holdings PLC.
In a statement, the trust said its dividend is fully covered by earnings, leaving a "modest addition" to revenue reserves. Revenue reserves amounted to GBP11.6 million, equivalent to 10.6p per share, as of January 31 and after providing for the final dividend due to shareholders on May 26.
Merchants was included by the Association of Investment Companies - an organisation representing the investment trust industry - in a "dividend heroes" list of investment companies that have increased their dividends each year for at least 20 years. The list was published earlier in March.
The dividend increase came as the trust said it performed better than its benchmark in the financial year ended January 31. Its total return on net asset value was down 5.0% against a total return on the FTSE 100 benchmark index of 6.5%.
"The main positives were strong relative performance from the equity portfolio and the benefit of the fall in the market value of debt, as it approaches maturity. The main negatives were the impact of gearing, in a period where market returns were negative, and the cost of finance," Chairman Simon Fraser said in a statement.
He said that a "slow" recovery from the global financial crisis of 2008-09 is continuing, although he warned of "specific" risks from slowing growth in emerging markets and the UK's upcoming, June 23 referendum on whether to remain a member of the European Union or leave.
"Nonetheless, our fund managers are finding many opportunities to invest in promising businesses on favourable valuations. The company's strategy remains to invest in a diversified collection of high yielding UK companies. The board believes this strategy is entirely appropriate for the current environment and allows shareholders to benefit from the opportunities in the UK equity market, whilst receiving a high dividend yield," Fraser said.
Merchants' share price fell by 14.5% to 414.0p over the course of the financial year, partly due to a widening of the discount at which the shares traded to NAV. On a total return basis, which includes net dividends, the value of the shares fell 9.5%.
The trust's dividend yield of 5.8% ranked third in the UK Equity Income investment trust sector as of January 31. Its shares yielded 6.0% as of Wednesday this week, measuring up against a 4.1% yield on the FTSE 100.
Gearing, a term referring to borrowing levels, averaged 21.8% throughout the trust's recently ended financial year, compared with 21.3% the prior year. Merchants has long term debt amounting to GBP111 million, money which is invested in the market.
Fraser said the trust decided to modify its policy so that gearing is maintained within a range of 10-25% at the time of debt drawdown, following a "thorough review" of gearing policy at the board's strategy meetings.
"In the past we have defined our gearing as being acceptable at levels of up to 35% in normal market conditions. Historically, Merchants has fully invested its debt into the equity market. Market volatility can alter the company's gearing in the short term," Fraser said in a statement.
Shares in Merchants were down 0.8% at 399.00p on Thursday morning.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
Merchants Trust