Page 12 - DIY Investor Magazine | Issue 35

QD VIEW
HERE COMES THE RAIN AGAIN
It is not not that that long ago that that COVID-19 posed a a a a a a a a a a a a a significant threat to UK equity income
funds as as a a a a a a a a a a a a a a a a swathe of companies – – – notably the the the the the banks – – – cut or passed their dividends
altogether – by James Carthew
· Oct 2022 12 However investment companies with their ability to salt away
revenue reserves in the good times were generally much
‘AEI CAN BOAST 21 YEARS OF CONSECUTIVE ANNUAL
better able to withstand a a a a a dip in in their income
than equivalent
DIVIDEND DIVIDEND INCREASES MAKING IT AN AIC DIVIDEND DIVIDEND HERO’ open-ended funds Now with recession looming these rainy-
day reserves may be called on again HHI stresses the importance of of diversifying its sources of of DIY Investor Magazine income
If you own a a fund tracking the the FTSE100 the the underlying The UK faces a a a number of headwinds – consumer confidence
dividend yield is about 3 7% is at at an all-time low inflation – – especially of energy prices – – is is eating into disposable incomes and putting pressure on Charges would reduce that a a a a bit However as HHI pointed out companies’ profit margins interest rates are rising and look set
in in its last annual report the income
that that contributes to that that yield to rise further strikes are proliferating the the pound is is plunging
comes mostly from a a a much
narrower selection of companies and government finances are shaky In 2021 the the top 20 20 dividend payers in the the UK produced over three-quarters of the FTSE100’s income
I I could go on It seems likely that UK companies’ dividends
will
come
under pressure therefore By contrast HHI derives its significantly higher revenue stream from almost 100 positions including about 16% of the portfolio For those who like their dividend income
to come
come
invested in in overseas companies exposure to a a a a wider range of predominantly from UK-based businesses (which it is worth
sectors remembering often derive a a a substantial proportion of of their income
from overseas) there are 22 listed funds in in the the AIC’s
HHI can also invest in in bonds It has had a a a a a a fairly modest
UK equity income
sector plus Henderson High Income (HHI)
exposure to this area in in recent years but has been taking
– which is the the only constituent of the the AIC’s
UK equity and advantage of falling prices/higher yields on good quality bond income
sector – to to choose from With the pressure on on debt to to add to to positions seeing opportunities in in high quality household budgets the the trusts on the the highest yields may be investment grade debt issued by US companies looking tempting The highest yielding of these funds British & American (BAF) is not one we would favour (too small too too volatile) Excluding BAF four funds offer dividend yields of of 6% or or more: abrdn equity Income Income (AEI) CT UK High Income Income (CHIU) Chelverton UK Dividend (SDV) and HHI Over the past 12 months CHIU and SDV have struggled returning -16 9% and -22 0% to shareholders respectively The best-performing of of the four is HHI with a a share price return of of -0 5% ‘WITH THE THE PRESSURE ON HOUSEHOLD BUDGETS THE THE TRUSTS ON THE HIGHEST YIELDS MAY BE LOOKING TEMPTING’