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Perpetual Income & Growth - dividends rise, but performance disappoints

Meet the latest dividend hero – Perpetual Income & Growth Investment Trust. Kate Marshall, Senior Investment Analyst, reports on how it earned this title following the release of its annual results for the year to 31 March 2019.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • NAV fell 0.8% while the share price fell 1.8%
  • The trust's benchmark, the FTSE All-Share Index, gained 6.4%
  • Barnett still sees the most value in domestic companies, where the trust is focused
  • Trust now recognised as a "dividend hero" – it's raised its ordinary dividend each year for the past 20 years (not a guide to the future)

Mark Barnett is a hugely experienced income investor. He's managed Perpetual Income & Growth Investment Trust for 20 years and over that time he's built a strong track record.

All fund managers go through periods of poor performance though. It’s happened to Barnett over the past few years. Investments in domestically focused businesses, and problems at some individual companies, have held back performance.

It's been a disappointing few years. But we don't think Barnett has turned into a bad fund manager overnight. He's invested this trust quite differently from other UK income funds. This means performance will be different, but over the long term it could help deliver good returns. To perform better than the stock market you must do something different.

The trust's weaker performance has seen its discount get wider. At the time of writing it’s 13.2%, almost the widest it's been over the past decade. We don't think this will be the case forever. Many of the companies Barnett invests in are severely out of favour at the moment. If sentiment changes, the discount could narrow. There are no guarantees though and it could still get wider.

The manager has maintained a good record of growing the trust's ordinary dividend. It's grown every year for the past two decades, meaning the trust has recently been crowned a "dividend hero". However it should be remembered all dividends are variable and not guaranteed. Past performance is not a guide to the future.

The manager's able to use derivatives and gearing, which means he can borrow money to invest, and this increases risk. You can find out more about the risks and the trust's charges in the latest annual report and accounts.

What's hurt performance?

The trust's NAV fell 0.8% over the year to 31 March 2019, compared with a rise of 6.4% for the UK stock market, though please remember past performance isn’t a guide to the future.

Annual percentage growth
May 14 -
May 15
May 15 -
May 16
May 16 -
May 17
May 17 -
May 18
May 18 -
May 19
Perpetual Income & Growth Investment Trust 12.7% -7.2% 11.7% -6.3% -11.1%
FTSE All-Share 7.5% -6.3% 24.5% 6.5% -3.2%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2019

Barnett focuses on unloved, but financially strong companies. He invests when their share prices and valuations are low, then waits patiently for the business to improve or the sector to return to favour.

This has led him to increase his investments in domestic companies in recent years. But they’ve remained out of favour, not helped by fears over Brexit and other political upheaval, and this held performance back.

The trust faced other issues too. Having no exposure to mining companies didn’t help as they performed well over the year. Barnett doesn’t like how closely their earnings (and therefore their dividends) are tied to volatile commodity prices, so he's happy to keep them out of the trust.

A rising oil price dragged on investments in Thomas Cook and easyJet, as it increases airlines' costs. The uncertainty of Brexit also put some people off travelling and reduced demand for travel companies' services.

Some of the trust's domestically focused companies made a positive contribution to performance. This includes power station owner Drax and retailer Next.

The trust has some exposure to companies that carry out business overseas. The tobacco sector is still a key theme and includes investments in Altria, British American Tobacco and Imperial Brands. They’ve delivered strong returns and dividends over the long term, but struggled last year because of worries about tighter regulation and how "new generation" products could affect demand for traditional tobacco products. Barnett thinks these companies are capable of creating innovative new products, so he's kept hold of them for now.

A new dividend hero

While the trust's performance has disappointed in recent years, there's one thing investors will be pleased to hear. Perpetual Income & Growth is now known as a dividend hero, which means it's increased its ordinary dividend every year for the past 20 years.

For the year to 31 March 2019, the trust is expected to pay a total annual dividend of 14.5p, a year-on-year increase of 4.3% (excluding special dividends), This year's final dividend of 4.75p is due to be paid to investors on 28 June. The trust currently yields 4.7%, though yields aren't a reliable indicator of what income will be paid in future.

Find out more about the investment trust, including charges and how to invest

Key information document

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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