City of London Investment Trust: dividend hero

One of the most popular investment trusts on Fidelity Personal Investing is the City of London Investment Trust, which regularly appears on the platform’s list of best-sellers. The £2.3bn fund has built up an excellent track record and pays an attractive level of income that has grown consistently over the years.

Longstanding manager Job Curtis looks for companies that can support their dividends through profits and cash generation, while still investing enough to grow. These tend to be quality businesses either with a strong market position in the UK or a leading global presence.

Objective and approach

The City of London trust aims to provide long-term growth in income and capital, mainly by investing in UK listed shares, although it can also hold some overseas companies. One of its main attractions is the focus on dividends, with the fund successfully increasing its annual distributions every year since 1966.¹

Curtis adopts a disciplined and prudent approach to stock selection and has built up a strong track record by investing in solid, long-term holdings that will stand the test of time. He tends to favour large UK blue chip stocks that often have a global presence and will be familiar to most investors.

Solid portfolio

At the end of August the portfolio consisted of 82 different holdings with the ten largest positions accounting for 34.9% of the assets. These included well-known names such as BAE Systems, Shell, Unilever, RELX and HSBC.

City of London Investment Trust top 10 holdings

1. BAE Systems
2. Shell
3. Unilever
4. RELX
5. HSBC
6. AstraZeneca
7. British American Tobacco
8. Tesco
9. Imperial Brands
10. NatWest

Source: City of London Investment Trust factsheet, 31 August 2024

The main sector exposures were Financials 29.2%, Consumer Staples 19.8% and Industrials 9.8%, with 86.7% of the fund invested in the UK. According to the annual accounts to the end of June, it was stock selection that was the primary driver of outperformance, adding 2.64% relative to the FTSE All-Share benchmark and contributing to the 15.6% return.²

What are the manager’s latest views?

Writing in his August update, Curtis said that there is considerable uncertainty for the global economy with ongoing elevated geopolitical tensions.

“Nonetheless, we think that the valuation of UK equities is compelling compared to their equivalents overseas, possibly due to the low allocation from domestic, institutional investors. In particular, we find the dividend yield of UK equities attractive relative to the main alternatives.”³

Reliable source of income

In the accounts to the end of June the trust announced total dividends per share of 20.6p that were fully covered by the earnings of 20.9p. This was the 58th year in a row that the fund had successfully increased its annual pay-outs, thereby elevating it to top spot in the AIC’s list of dividend heroes.

The broker Numis says that the shares currently yield 4.7% compared to an average of 4.1% for the peer group and there are significant distributable reserves to support further increases in the future. Please note this yield is not guaranteed. It is an approach that will obviously appeal to income seekers, especially in view of the quarterly distributions.⁴

Performance and discount

City of London was one of few equity investment trusts to issue new shares to meet the demand during 2023, however this ground to a halt in the second half of the year and since then the fund has consistently been buying back its own stock. Unlike many of its peers the policy has been a great success and kept the shares consistently close to their underlying net asset value.

Over the 10 years to the end of August the trust generated an NAV total return of 89.2%, which was well ahead of the 80.9% produced by the FTSE All-Share benchmark.⁵

Please remember past performance is not a reliable indicator of future returns.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in this investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.