Key insights
- The Global Smaller Companies Trust is one of a select few investment trusts that have increased dividends for more than 50 consecutive years*
- Consistently buying high-quality stocks with capable management at attractive prices has been key
- The attractions of trusts that can increase their dividends year after year could prove still more significant
The past 50 years have seen one crisis after another —the high inflation of the 1970s, the recession of the 1990s, the global financial crisis of 2008 and, most recently, the Covid-19 pandemic. Yet through all this time The Global Smaller Companies Trust has delivered consecutive annual dividend increases.
To be precise, The Global Smaller Companies Trust has raised its dividend for 54 years. It belongs to a select band of only ten investment trusts that have done so for more than 50 years, according to the Association of Investment Companies (as at August 2024).
The Global Smaller Companies Trust 5 year net dividend performance – pence per share as at July 2024
2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
January | 0.50 | 0.55 | 0.55 | 0.57 | 0.63 | 0.68 |
August | 1.15 | 1.15 | 1.20 | 1.27 | 1.67 | 2.13 |
Total | 1.65 | 1.70 | 1.75 | 1.84 | 2.30 | 2.81 |
That’s good news not only for income investors but also for those reinvesting dividends in pursuit of capital gains. Over the last 25 years the trust has turned a £1,000 investment in its shares – with dividends reinvested – into £10,117.[1] For comparison purposes, an investment in the trust’s benchmark index would have turned £1,000 into £8,176.[2] So, the trust’s dividend-powered returns have substantially beaten its index.*
In the shorter term, the trust has experienced times when high interest rates can create a challenge for economically sensitive smaller companies. Over the past five years, for instance, the trust’s net asset value has risen 41.25%, falling short of the benchmark’s 47.24%.[3] Yet this shows the importance of investing for the long term, which tends to iron out fleeting fluctuations in performance.
The Global Smaller Companies Trust 5 year discrete annual performance as at 31 July 2024 (%)
2024/23 | 2023/22 | 2022/21 | 2021/20 | 2020/19 | |
|---|---|---|---|---|---|
NAV (debt at market value) | 13.19 | 2.25 | -5.96 | 41.72 | -12.17 |
Share price | 19.20 | 1.42 | -7.37 | 36.18 | -13.24 |
Benchmark | 12.69 | 4.46 | -4.84 | 41.73 | -9.33 |
Seeking good-quality growth companies
How have the trust’s managers achieved the five decades of dividend growth? By buying companies with three common characteristics. Firstly, they seek high-quality businesses with attributes like strong competitive advantages, pricing power and financial strength. Secondly, the businesses must have capable management who are good allocators of the company’s capital, with “skin in the game” through stock options or owning shares. Thirdly, they seek to buy stocks at attractive valuations, often doing so when they are out of favour.
“The investment philosophy of The Global Smaller Companies Trust is to take a long-term conservative approach to buying good quality, growing businesses, when they become available at an attractive valuation,” explains Nish Patel, who has been lead portfolio manager since May 2024 after previously being the joint lead.
From semiconductors to pizzas and logistics
Examples of the types of high-quality, growing smaller companies that fuel the fund’s dividend growth and capital returns include two Dutch beneficiaries of the AI boom: the semiconductor equipment suppliers ASM International and BE Semiconductor Industries. Both make equipment for producing the complex, next-generation semiconductor wafers and chips needed for applications like AI.
But the trust mainly invests in reliable growth companies from less vogueish sectors. For instance, Domino’s Pizza, the UK pizza delivery business, has both a strong brand and a scale that equip it to take market share from its competitors. It has expanded even through tough times.
Turning to the United States, GXO Logistics is a contract logistics provider based in Connecticut that is growing as companies increasingly outsource their contract logistics. GXO can do the job cheaply and provide technology. The trust bought the stock at an attractive valuation after high interest rates unsettled the share price.
Running our winners
Stocks like these may be held for many years. “We really run our winners, especially in a situation where there are plentiful growth opportunities,” notes Nish. “We have held things in the portfolio for over 10 years. These are, particularly, compounding businesses that started off very small and have grown but are still not classified as large capitalisation businesses.”
Going forward, companies like these should continue to enable the trust to pay out growing dividends every year, although there are no guarantees. In a world where stocks in countries like the United States are highly valued, the reliability of dividends that can increase year in, year out could prove still more significant in years to come.
Investment risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment. The use of gearing can enhance returns to investors in a rising market, but if the market falls the losses may be greater.
The mention of a stock is for the purpose of illustration and should not be considered as a recommendation to buy or sell the stock.
*There is no guarantee that dividends will continue to increase
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