Strong dividend growth amongst global growth investment companies

The Global Growth investment company sector has been serving up returns for shareholders for decades. In particular, over the last 3, 5 and 10 years it has outperformed the FTSE All World Index by a considerable amount.

Research from the Association of Investment Companies (AIC) also shows that many have also been delivering impressive dividend increases too. At a time when creeping inflation is still a concern, dividends can be particularly important to investors.

Whilst the Global Growth sector is not traditionally associated with income yields, it’s interesting to see that 44% of AIC Member Global Growth investment companies with 10 year track records have increased their dividends every single year for at least each of the last 10 years. The AIC looked at Members in the Global sectors with 10 year histories or longer. See table on page 3 for a list of the companies.

The UK sectors, amongst others, also have a number of investment companies with proud histories of raising dividends on a year on year basis. In the UK Growth & Income investment company sector, some 47% of AIC Member investment companies with 10 year histories have been able to increase their dividends for at least each of the last 10 years, whilst in the UK Growth sector, the same was true for a number of AIC Member investment companies.

With creeping inflation, what is the outlook for world markets? The Association of Investment Companies (AIC) has collated the views of a number of Global Growth managers. Whilst all are cautiously optimistic, interestingly, all three of the managers the AIC spoke to said they have slightly decreased their gearing (borrowing) levels recently. This includes Jupiter Primadona Growth Trust, which is the top performing AIC member in the Global Growth sector over the last year, up 29%.

Alex Crooke, Manager, The Bankers Investment Trust said: “Global equity markets have been benefiting from low interest rates providing cheap liquidity. The advent of creeping inflationary pressures across a number of areas is leading to higher interest rates and will act as a dampening force on the upward movement of share prices. The market is moving to a phase where stockpickers will flourish, as not all companies will be able to pass on higher costs and grow profits. At Bankers Investment Trust we invest in companies with sound balance sheets and the ability to increase dividends and profits through the economic cycle.”

Paul Sheehan, Manager, Jupiter PrimadonaGrowth said: “We are in a multi-year industrial and consumer boom for China, much of Asia, Russia and parts of the Middle East and Latin America. This is a bullish background for global equity investing and there is still value in a number of equity markets, especially China, Brazil and Russia. The UK looks cheap and there are plenty of opportunities, especially in the UK small and mid cap areas.”

John Kennedy, Manager, The Scottish Investment Trust said: “Clearly in the fourth year of a stock-market rally it is important to retain some context and moderate your expectations. Investors should be aware that not only have stock-markets risen a long way from the bottom in 2003, but corporate profits, upon which companies are valued, have also risen a long way.

“That said, world equity markets are taking much support from the frenzy of cheap-debt financed M& A and related speculation. The world economy is in reasonable shape with growth slowing slightly into 2007 at around 4% or so, powered by the developing Chinese economy. Corporate earnings are set to grow further in 2007, albeit at a slightly slower rate than this year. We are more excited by the long term prospects for world equities than the short term We are continuing to uncover reasonably priced long term investment opportunities in most regions of the world – and increasingly so in Latin America and Asia Pacific.

“We have eased back on gearing into equities to being essentially ungeared. That said, we are still seeing interesting individual growth opportunities in a number of industries including construction, specialist engineering and oil services. The common factor in each is that each company is well positioned to thrive even in a slowing world economy.”

Commenting on the Global Growth sector as a whole, John Kennedysaid: “The Global Growth sector has adapted vigorously to modern investor requirements and many sector trusts have performed well in recent years due to a renewed focus on their key strengths – namely very low costs and an unparalleled freedom to invest wherever the managers see value, free of artificial constraints and investment fashion.”

Jemma Jackson, PR Manager, Association of Investment Companies (AIC) said: “It’s interesting to see that so many Global and UK investment companies, amongst others, have such a strong record when it comes to raising their dividends, whilst many others have at least maintained their dividends. The structure of the closed ended sector lends itself well to this. Investment trusts can retain up to 15% of the dividends they receive each year and transfer this to their revenue reserves. These reserves can be built up in good years and used to bolster dividends to shareholders in other years – known in the industry as ‘smoothing dividends’.

“For investors looking for a global portfolio, the Global Growth and Global Growth & Income investment company sectors can be a one shop international investment shop. Diversity in the Global sectors continues to grow and there is something to suit a variety of objectives and risk profiles.”