A profitable year at Lindsell Train Limited has resulted in a £31.2m payout for founders Nick Train and Michael Lindsell and supported an increased dividend for shareholders of the Lindsell Train Investment Trust, which owns a sizeable stake in the boutique fund house.
Filings from Companies House published on Friday showed pre-tax profits at Lindsell Train leapt 33% for the year ended 31 January 2020 from £55.7m to £73.7m. Overall fee revenues rose 32% to £111.9m from £84.5m in 2019 as net flows and investment performance bumped up funds under management to £21.5bn (2019: £16.3bn).
The bumper year in profitability led to Lindsell Train shareholders receiving a record dividend payout of £43.2m, up from £29.3m in 2019.
Train and Lindsell, who control just shy of three quarters of the total shares in the boutique, including shares owned by their spouses, paid themselves dividends of £15.6m. The year before the pair scooped up £10.7m each.
The Lindsell Train Investment Trust, which holds a little under a quarter of its shares, received £10.4m in dividends for the year.
Train’s £227m trust declared a final dividend of £41.39 a share for the year ended 30 March 2020, one and a half times higher than its £27.87 distribution in 2019, according to its annual results, which were published on Monday. On top of this shareholders received a special dividend of £2.61, up from £1.63 the previous year.
See also: Michael Lindsell reassures investors Lindsell Train salaries will take a hit
Nick Train foregoes performance fee due to share price volatility
Train declined to take a performance fee for the year which the report attributed to “dramatic highs and lows” for the trust’s share price.
Lindsell Train Investment Trust returned 9.8% on a NAV basis, over double the 4% returns on its bond benchmark. Despite being in the Investment Trust Global sector the trust pits itself against the annual average running yield on the longest-dated UK government fixed rate bond plus 0.5% with a minimum yield of 4%.
But chairman Julian Cazalet said “these relatively benign results disguised extreme volatility in the share price” which began the year at a 65% premium to NAV and rose to a premium of 100% at £2,000 a share before being severely knocked back during the coronavirus market rout. By mid-March shares were trading at a low of an 18% discount to NAV.
Cazalet noted the degree of volatility in the premium/discount is unusual for an investment trust but is partly explained by its hefty holding in Lindsell Train Limited “whose business itself is largely dependent on the performance of markets, which were themselves extremely volatile”.
“Long-term investors can take comfort from the steady rise in the NAV but new shareholders, particularly those who bought at times in 2019, will be smarting from an abrupt loss of value from the fall in the share price,” Cazalet said.
“In light of this, and to reinforce the alignment of interest with shareholders instilled since the company’s inception, the manager has chosen not to take the performance fee of £448,679 it was due.
“However, the high watermark set at 31 March 2019 will not be adjusted upwards, which will allow the manager to earn the fee in future periods, provided appropriate returns are achieved.”
Future of dividend hikes uncertain
Cazalet cautioned that future dividend hikes could have to be put on pause if Train’s boutique suffers further blows to its funds under management, which would trigger a squeeze on earnings and in turn impact the dividend.
As Lindsell Train Limited makes up 46.8% of the trust’s net asset value its annual dividend payout represents a large portion of the investment company’s revenues. In 2020 the firm accounted for 84% of the trust’s total revenues and was the main contributor behind its 48% profit growth.
Lindsell Train Limited was written down by 13.4% in March after assets at the firm tumbled to £18.2bn during the coronavirus sell-off, after peaking at £22.7bn in August. Despite this adjustment the firm’s valuation increased 8.7% for the year.
Cazalet said it was also likely that dividends from other investee companies would fall this year as a result of the business disruption stemming from the coronavirus lockdowns though noted these make up a smaller part of revenues.
