Preserving a record of dividend increases stretching back almost half a century brings its own pressure. Neither the board or fund manager at Murray Income Trust will want to be the ones who break the cycle and have that distinction on their records.
Dating back to 1923, the £625 million trust has been listed on the London Stock Exchange since 1953. It is aiming to make it 45 years in a row of a rising dividend when its annual results to the end of June this year come out in September.
Interim numbers for the six months to December 31 were published this month and Neil Rogan, the chairman, acknowledged the “disappointing” performance in terms of the net asset value per share return compared with its benchmark.
The trust had a 4 per cent return in the six months, he said, while the FTSE All-Share was up 7.2 per cent. The longer-term numbers on that measurement were also disappointing, he said, adding that the situation was being monitored closely with Charles Luke, the trust’s manager from Standard Life Aberdeen.
Indeed the trust’s net asset value total return of 42.47 per cent over five years is behind the 43.94 per cent of its benchmark. Yet the upward path of its dividend remains. So far the trust has pencilled in quarterly dividends of 8p, compared to 7p, for the first three quarters of its current financial year. It paid 32¾p in total for the previous financial year.
With a revenue reserve that stood at more than £25 million at the start of this year, it would be a surprise if a 45th consecutive dividend rise did not take place. The trust focuses on companies whose prospects for dividend growth and income are strong. The dividend cover for stocks it holds is 1.6 times.
Looking more closely at the performance in the latest six-month period, the main drag on performance was down to just one stock: Provident Financial. The troubled lender caught more than one investor on the hop with a profit warning in August which wiped £1.7 billion off its market capitalisation. Mr Luke sold the trust’s entire holding in Provident, citing the “significant deterioration in the quality of the company and the breakdown in trust with the management”. There was a more timely sale with Capita whose shares are down by a further 50 per cent in the months since Murray Income offloaded it.
The other area the trust performed poorly in was commodities, where its under-exposure to the recovery in oil and mining stocks left it lagging.
Among the biggest additions were Londonmetric, the property company focused on distribution sites for retailers, and Euromoney, the information provider.
Holdings in Gima, an Italian company that makes manufacturing and packaging machines for the tobacco sector, Relx, the analytics group, and Rio Tinto, the mining giant, were also purchased.
Additional stakes were taken in businesses with “attractive prospects” including Assura, the property group that owns healthcare assets, Croda International, the chemicals group, and Aveva, a software company.
Alongside that Mr Luke decided to reduce the exposure to Glaxosmithkline, the pharmaceuticals group, and Immarsat, the satellite telecoms provider, as he felt there was a greater risk to their dividends.
The trust’s own share performance has been up and down in recent years. In recent days the stock has been trading near 760p, which is close to where it was at the beginning of 2015.
The three years in between have seen the shares go as low as 600p and reach a high of 820p.
MY ADVICE Hold
WHY Shares may continue to fluctuate but the prospects for steady dividend growth look strong
Spectris
Over the past few years Spectris, a maker of measuring instruments for pretty much every industry on the planet, has been moving into services. Instead of simply providing hardware, it now does the measuring — and other related R&D — for clients and provides other services. This means its business is increasingly becoming that of a data aggregator, adding value through analysis.
Its push into services is as much about the shortage of engineers for its clients to hire as about companies not wanting to carry big capital investments on their balance sheets at times of economic uncertainty when they can buy in measurement services as they need them.
Services now accounts for roughly 40 per cent of Spectris’s revenue, up from about 20 per cent five years ago, according to the chief executive John O’Higgins, who cites the aviation industry as a typical source of growth. While airport operators want to know how to manage the airspace around them to get fewer complaints about noise and pollution, they are not always sure how best to go about it. They often don’t even know where to stick the microphones to measure noise.
Thanks to its growth in services, Spectris is highly cash generative. But the nature of its business means it is also cyclical. After a difficult 2016, it is benefiting from a recovery in metals, minerals and mining plus good growth in pharmaceuticals and semiconductors and the increasing need for testing in electric cars. Its latest annual results show solid organic sales growth of 6 per cent to £1.52 billion last year. Its adjusted pre-tax profit rose 12 per cent to £218.4 million. Shares rose 4.2 per cent to £27.58.
However, it trimmed expectations from its Project Uplift cost-saving programme from £35 million to £25 million a year. It also noted a weakness in its academic research business, where demand has been soft due to university funding cuts.
Spectris paid £163 million last month for Concept Life Sciences. Even after this and a £100 million share buy back, announced yesterday, Mr O’Higgins said that it had plenty of cash for acquisitions.
MY ADVICE Hold
WHY Strong organic sales growth, but all eyes now will be on its ability to cut costs
