LAW DEBENTURE CORPORATION: Growing income for the last 12 years

Like many investment trusts, Law Debenture Corporation’s name does not exactly whet investors’ appetites for earning long-term returns from equities. 

Although there is a ‘law’ element to the trust’s portfolio, the £964million fund is primarily a vehicle that seeks to deliver an attractive stream of dividends to shareholders – plus a dollop of capital return on top. It is what is commonly called an UK equity income investment trust. 

It’s an investment objective that Law Debenture has fulfilled quite effectively in recent times. For the past 12 years, it has provided investors with a growing income – and despite the difficult economic backdrop, it looks as if that will become 13 when the last two quarterly payments are made for the current financial year. 

‘It would surprise me if the annual dividend is not up again,’ says Laura Foll, who manages the trust’s equity portfolio with James Henderson (both work for UK asset manager Janus Henderson). 

So far this financial year, the trust has paid first-half dividends of 14.5pence a share, compared to 13.75pence last year. The income payments are equivalent to an annual income in the order of 4.8 per cent. In terms of overall returns – capital plus income – the trust has also delivered, especially when compared against its peers. 

Over the past five years, it has generated a total return of 55 per cent, better than any other UK equity income stock market listed trust. 

Over the past year, it is only one of six to have delivered a positive return – the others being The City of London (also managed by Janus Henderson); Merchants (Allianz); Temple Bar (Redwheel); and Edinburgh (Liontrust) and Shires (Abrdn). 

Law Debenture’s assets fall into two distinct silos. The first, representing the ‘law’ element, is an unlisted international business called Independent Professional Services. It makes money from providing trustee services to both pension funds and companies – as well as offering other corporate services. 

Currently, it represents about a fifth of the trust’s assets, but provides a third of the income that is passed on to shareholders by way of dividends. The remaining 80 per cent of assets are 150 equity holdings managed by Foll and Henderson, most with a record of generating dividends. 

‘Given the trust has 20 per cent of its assets in just one holding,’ says Foll, ‘it’s important to provide diversification across the rest of it. The result is a low conviction portfolio, with the biggest positions being no more than 3.5 per cent.’ 

These are in blue-chip companies renowned for dividends – the likes of Shell and BP. With the IPS business delivering a healthy chunk of income, the two managers are able to invest some of the trust’s assets in companies that are currently offering little by way of dividends, but the prospect of healthy payments in the future. 

Entertainment company Flutter, currently not paying a dividend, is a top ten holding while the managers have been adding to its stake in manufacturer Morgan Advanced Materials. Morgan significantly increased its interim dividend payment for the current financial year and recently said profits for the year would come in at the top end of analysts’ forecasts.

Foll believes the UK stock market, especially outside the FTSE100, has already factored in the likelihood of a recession and a dip in corporate earnings. Historically, she says, it looks cheap. 

The trust’s stock market identification code is 3142921 and ticker LWDB. Ongoing annual charges are low at 0.48 per cent.

This post first appeared on Dailymail.co.uk