Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
magazineWhy you can trust in Merchants
Investors whose confidence in the markets has been rocked by the return of volatility might hunker down in The Merchants Trust (MRCH). This is an investment trust with pedigree in offering a high yield and paying out a growing dividend that has outpaced inflation over the long haul.
Most of the fund is in safer, income-generating larger companies and this has underpinned an impressive track record of dividend growth, increasing its payout for 36 years on the spin.
At 491p it offers a generous yield of 5.1%.
DIVIDEND HERO
Established back in in 1889 by some of the leading financiers and lawyers of the day, Merchants has navigated a variety of market conditions and several world wars during its storied history.
Managed by value-oriented stock picker Simon Gergel of Allianz Global Investors, Merchants is one of the Association of Investment Companies’ (AIC) ‘Dividend Heroes’, an elite group of investment trusts that have hiked their shareholder rewards each year for 20 years or more.
A focused portfolio of 40-60 shares, Merchants provides an above average level of income and income growth, together with long term capital growth by investing mainly in higher yielding UK large caps. Merchants cites compelling historical evidence that, on average, companies paying high dividend yields have delivered above average total returns, alongside the higher income stream.
Results (29 Mar) for the year to January revealed a 14.5% net asset value total return, ahead of the 11.3% total return from the FTSE All-Share benchmark.
Merchants also proposed a 2.5% total dividend hike to 24.8p. Last year, Merchants also carried out a debt refinancing which will give the board the flexibility to grow the dividend faster.
MERCHANTS’ MAGIC FORMULA
Gergel mainly puts money to work in FTSE 100 and to a lesser extent the FTSE 250 for stocks with strong franchises, copious cash flows and fortified balance sheets and he looks to pay a reasonable price for the shares that pepper the portfolio.
Merchants’ blue chip picks range from mining giant BHP Billiton (BLT) and BAE Systems (BA.) to Royal Dutch Shell (RDSB), able to generate substantial cash flows over the oil price cycle and fund a high dividend.
Other positions include Meggitt (MGGT), the engineer specialising in the aerospace, military and energy markets, property developer Land Securities (LAND) and Bovis Homes (BVS), a turnaround tale under new management. (JC)
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
