âDividend Heroâ Ark City of London (CTY) has appointed David Smith as deputy director, settling questions of who will take over the popular Â£ 1.7bn UK equity income trust when Job Curtis, its 30-year fund manager, takes over. his retirement.
There was no mention in today’s annual results of when Curtis, 60, might step down, but a succession plan has been put in place for Smith (pictured above), who manages the 221 million pounds sterling. High Income Henderson (HHI) and manages the UK portfolio of Bankers (BNKR) global investment fund.
Smith has attended CTY board meetings regularly for the past three years, the company said. âHe has a close working relationship with Job Curtis, our longtime fund manager, having been a member of Janus Henderson’s global equity income team for nine years,â he added.
Smith has been managing the 6% HHI for the past seven years. Although its performance has struggled over the past five years with a total shareholder return 18% lower than the 32% of the FTSE All Share at yesterday’s close, over 10 years it has generated 150%, ahead the 109% of the index.
HHI, which invests around 11% in bonds, actually uses a composite benchmark index split 80-20 between the All-Share index and the UK bond index. According to the company, that returned 30.2% in the five years leading up to Aug.31, slightly ahead of the trust’s 28.5% total shareholder return.
The dividend reaches 55 steps
News of the appointment came as CTY declared its 55th consecutive rising dividend – the record in the investment trust industry – with an increase of 0.5% or 0.1p to 19.1p per share.
Like last year, when the board of directors faced an “avalanche” of dividend cuts and cancellations during the pandemic, CTY once again dipped into its income reserves to increase its payout.
Although a rebound in dividend payments raised earnings per share 8.6% to 17.09p, this was not enough to cover the trust’s dividends, requiring Â£ 8.1million to be drawn on the shares. reserves, up from Â£ 14.4million last year.
This left CTY with earnings reserves of Â£ 37.6million, less than half of which was paid out in dividends during the year. While that pool is shrinking, the trust also has distributable capital reserves of Â£ 296.6million, meaning the 5% yield can support a rising dividend for years to come if it so chooses.
With quarterly dividends included, Curtis (pictured below) delivered a 20% Underlying Total Return on Investment which, although below the 21.5% of All-Share and the average rise from 26.4% of industry competitors, was a big improvement over the loss of 14.6%. the previous year.
It included a second half where net asset value rose faster than the UK stock index, Curtis’ value style of buying slightly disgraced companies took hold after years of being put in the spotlight. spread by “growth” stocks.
âWhile City of London is behind the FTSE All-Share Index for periods of up to five years, reflecting the underperformance of high-yielding value stocks, it is 19% ahead over 10 years with a return of 104.5%, “said Laurie Magnus, who replaced Philip Remnant as chairman last year.
Curtis explained that his preference for large defensive companies detracted from the trust’s relative performance, as Verizon Communications, Nestle, Novartis, Merck and Munich Re, which maintained their dividends during economic lockdowns, had fewer opportunities to turn. recover when the stock market recovered from the crisis. Covid crash in the spring of last year.
Although Curtis increased his exposure to mid-sized stocks outside the FTSE 100 to 15% from 12%, he was, as always, underweight small and mid caps, which soared with the reopening of the l ‘economy.
He sold long-standing positions in Halma, maker of health and safety products, Spirax-Sarco Engineering, and maker of precision measurement equipment Renishaw after their stocks became expensive and their dividend yields fell. fell below 1%.
Cruise ship operator Carnival, National Express and bowling company Ten Entertainment were also scrapped when their ability to restore their dividends seemed distant.
Curtis recycled the money from those sales into financial services stocks with stakes in fund manager M&G, online brokerage IG Group, and insurers Phoenix, Legal & General, Direct Line and Saber. He also opened a new position in insurer Lloyds Beazley.
He continued to favor stable food retailers, adding to Morrisons and Tesco before the former received two private equity offers.
Faith in queers and oil
Curtis broadly supports the traditional big dividend payers of the FTSE as they face huge business challenges. After reducing his exposure to the oil sector to 5.3% after Shell and BP cut dividends last year, he believes the two can succeed in their long-term pivot to renewables.
âRoyal Dutch Shell and BP stock prices have lagged the recovery in oil prices and are expected to do better as they continue to raise their dividends,â he said.
Of the much larger 21.4% allocated to consumer staples companies, such as Diageo and Unilever, Curtis retains a stake in British American Tobacco. It generates a lot of money for dividends and is very cheap with stocks depressed by the detrimental impact of its products on health.
“In our opinion, BAT will be able to replace the benefits of cigarettes with its less harmful, next-generation nicotine products over the long term,” said the fund manager.
Curtis, however, joined investor protests against Rio Tinto, the mining giant which is its third largest stake. After his scandalous destruction of a sacred Aboriginal site in Juukan Gorge, Australia, the company’s CEO resigned, but Curtis voted against his compensation report and the re-election of two of its directors to mark his dissatisfaction with the management of the incident.