Key insights
- The trust has reliably grown its dividend in every one of the past 30 years.
- Julian Cane, who has managed the trust for over 25 years, only invests in companies that he strongly believes in
- Whether you are looking for regular income, or to reinvest your dividends for long-term growth, the trust could play an important part in your investments.
In the tortoise and the hare, a renowned Aesop’s fable, the steady tortoise famously outpaces the over-confident hare. Similarly in stock market investing, firmly applying sound investment techniques over time can produce solid returns, proving more reliable than trading in and out of the market.
Nothing could illustrate this better than the CT UK Capital and Income Investment Trust, which has steadily increased its dividend for 30 years in a row. This has led to the Association of Investment Companies awarding it ‘Dividend Hero’ status.
The trust aims to offer a reliable income while at the same time seeking to grow the size of your investment. It does so by seeking to search out some of the UK’s best large and medium-sized businesses, giving investors access to a range of quality UK stocks in one place.
Over the period since its launch in 1992, the trust’s dividend has grown at twice the rate of inflation. In fact, the dividend has grown by more than 250% in that time while UK consumer price inflation has risen by just over 100%.1 In terms of dividend yields, the trust’s net dividend yield is 4%.2
To achieve this, Julian Cane, who has managed the trust for over 25 years, carefully identifies UK companies that are growing and profitable today and have the strong, sustainable foundations to be able to continue that profitable growth into the future. Over the past 10 years, that has led to capital growth in the trust’s net asset value of close to 70.3%, exceeding the FTSE All-Share Index’s return of 62.1%.3
Companies we strongly believe in
“We invest in companies that we strongly believe in,” notes Julian. “Most of them generate much of their revenues outside the UK, which means that you benefit from international growth and diversification.”
In fact, the stocks in the trust earn more of their total revenues in Europe and the US than they do in the UK. That means they can profit from the relatively robust economic growth in the US, for example.
When seeking out companies, Julian and his team look for three merits. Firstly, the company should be high-quality. In other words, it should have a competitive advantage that will last over time. Secondly, Julian needs to believe in the management team’s abilities and see that they have the right financial incentives to make a success of the business. Thirdly, the valuation should be attractive. Julian judges this through estimating future cashflows and discounting them back to the current share price.
Two examples of stocks that he firmly believes in are OSB Group and Burford Capital – both of which offer the potential of strong returns. Take OSB Group, which is a specialist buy-to-let mortgage provider lending to professional landlords who tend to have about seven properties each, making them less vulnerable to rent defaults. Despite the shortage of UK housing meaning that there is huge demand for rental property, the high street banks are not competing hard in this market. The result is that OSB earns a high return on the equity capital invested in the business of 20%.4
“I much prefer OSB to the high street banks that struggle to give returns on equity into double digits,” Julian says.
Turning to Burford Capital, a specialist in litigation finance, the reason for investing lies in the value of its legal claims. Burford invests in large corporates’ legal claims and currently owns a claim against Argentina, which nationalised the oil company, YPF, in 2012 without adequate shareholder compensation. In 2023, a US judge ordered Argentina to pay US$16 billion (£12.8 billion), of which Burford’s share is US$6 billion. The decision is subject to appeal, but there is considerable upside for Burford, which has a stock market capitalisation of £2.5 billion.
Staying in the market
For investors in the trust, it’s important not to be swayed by UK stocks going in and out of favour when judged by valuation yardsticks like the price / earnings ratio – a comparison of a stock’s price against its earnings. “The UK FTSE 100 large stock index is currently trading a long way below average and the FTSE 250 mid capitalisation index is at very depressed levels,” Julian notes. “UK equities are trading at low levels relative to their own history and the rest of the world.”
Rather than seeking to take advantage of shifts in stock market valuations, though, Julian believes it’s better to invest steadily for the long term. “We feel the most important thing is to be invested in the market, rather than trying to jump in and out.”
Whether you are looking for regular income now, or to reinvest your dividends for long-term growth, CT UK Capital and Income Investment Trust could play an important part in your investments.
1Source: Investor meet company webinar, March 2024.
23.84%, as at 31.03.24
3As at 23/01/24. Source: Kepler/Morningstar.
4 Source for OSB and Burford facts: Investor meet company webinar, January 2024.
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.
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