A recent report from Winterflood Securities points to yields on global and UK equity income funds remaining at attractive levels with virtually all of them offering yields above the FTSE All Share.
“Very few have been forced to cut their dividends despite the turmoil in the UK market place over the past few years, according to Simon Elliott, head of Winterflood’s investment trust research team.
Elliott also points to the increased interest in alternative yield-producing asset classes such as infrastructure and floating rate debt.
“However, traditional equity income mandates,” he argues, “are still trading at historically tight levels with many on premia to their NAVs.”
Elliott continues: “One of the key attractions of equity income funds is their ability to grow dividends. Over three years to 2010, the weighted average dividend increase, on an annualised basis, for UK income growth funds is 4.6% pa compared with a decline of 0.5% pa in the yield of the FTSE All Share.”
Over the longer term of five years growth for UK income growth funds is 6.2%, a similar level to 6.5% pa for the FTSE All Share.
“We believe that dividend growth rates are crucial and we have a preference for those funds that have demonstrated above-market growth. We would highlight Perpetual Income & Growth, whose dividend has grown 11% over the five years to 2010, and City of London, which has seen an 8% annualised dividend growth rate and also possesses a record of 45 years of uninterrupted dividend increases,” he says.
