According to its monthly report on the investment trust industry, yields on Global and UK Equity Income funds remain at attractive levels, with virtually all of them offering yields above the FTSE All Share.
Winterflood admitted in the case of many trusts dividends had been increased by using revenue reserves, but added that was one of the main advantages of the closed-ended structure.
Over the three years to 2010, the weighted average dividend increase on an annualised basis for funds in the UK Income Growth sector is 4.6% compared to a 0.5% decline per year in the yield of the FTSE All Share, Winterflood said.
It added that the majority of funds have revenue reserves equivalent to one year’s dividend or greater and said it was too early to accurately gauge how funds have fared so far this year.
Winterflood’s preference is for funds that have demonstrated above-market growth in their dividends, and it singles out Perpetual Income & Growth and City of London for recommendation.
Perpetual Income & Growth has grown its dividend 11% over the five years to 2010, while the City of London has seen an 8% annualised dividend growth rate and has a record of 45 years of uninterrupted dividend increases.
Kieran Drake, analyst at Winterflood concluded: "In terms of discounts, the UK Income Growth sector is not cheap by historic standards but we believe that as long as yield remains in demand ratings will be maintained in the medium term."
