Alliance Trust is increasing dividends by almost a third after seeking court approval to shuffle its merger reserves into distributable reserves.
The board of the £3.2bn investment trust revealed in its half-year results in July that it would be reviewing dividend payments. Covid’s effects on the courts system had prevented the trust converting its considerable merger reserves during the previous financial year.
But a regulatory filing on Monday morning reported shareholders could expect a considerable increase in their remaining two dividends for 2021.
Court approval has now been granted for the investment trust’s merger reserve to be reclassified as a distributable reserve. Merger reserves were £645.3m at 30 June 2021, according to Alliance Trust’s half-year results. Its capital reserves at the same period were £2.6bn.
The third dividend for the year will be 5.825p, up 62% from the corresponding dividend last year, and the final dividend is expected to be the same amount again. That would result in a total dividend for 2021 of 19.054p, up 32.5% from last year.
Alliance Trust will continue to declare year-on-year dividend increases in accordance with its dividend policy. Alliance Trust is one of the Association of Investment Companies’ dividend heroes having increased its dividend for 54 consecutive years.
Shareholders had suggested to the board they wanted a higher dividend “as long as it is sustainable and affordable”, Alliance Trust chairman Gregor Stewart said in a regulatory filing.
“The expected recovery in the income from the portfolio and flexibility afforded by our extensive and recently enhanced distributable reserves means that an increased level is affordable and that our track record of annual dividend increases can be sustained,” Stewart said. “We have therefore decided to reset the dividend to a more attractive level.”
QuotedData head of investment companies James Carthew said: “Alliance Trust is unusual in that it has a very large merger reserve, created when it absorbed the Second Alliance Trust, which it has now converted into a distributable reserve. The size of this is considerable, giving Alliance Trust greater flexibility than most other trusts.
Carthew said the dividend uplift made sense to him. “Many investors are looking for above-average and reliable income, and Alliance Trust can now provide both. Those investors who want to build up their capital rather than take the income can make use of Alliance Trust’s dividend reinvestment plan.”
