JEFF PRESTRIDGE: Law Debenture is big beast of investment jungle

The publicly traded investment fund Law Debenture is a strange beast. It is part of a conventional investment portfolio and part of a legal company owned by the trust.

While it’s unlikely that such a combination would take off as an investment entity today, it works as evidenced by the fact that it’s been floundering for over 133 years.

Change is simply not an option. Both the investments – managed by James Henderson and Laura Foll at Janus Henderson – and the legal business IPS (Independent Professional Services) are good for each other. Crucially, it works for the trust shareholders.

A few days ago, the £1 billion trust announced its financial results for 2022. While one year only provides a snapshot, it was a satisfying set of numbers.

While the total return to shareholders was meager at 0.4 percent, it delivered income in spades. During the year it paid a total dividend of 30.5 pence per share, an increase of 5.2 percent on the previous year.

It means the trust has achieved 13 years of annual dividend growth – and 44 years of maintaining or increasing dividends.

All pretty impressive, although the longer term numbers look better. Over the past five years, the trust has achieved a total shareholder return of 82 percent.

To put this in perspective, the FTSE All-Share Index returned 31 percent over the same period.

The impact of IPS on trust performance cannot be underestimated. Much of the revenue the trust generated last year — 30 percent — came from IPS, a company that has its fingers in many pies.

It makes its job of providing corporate secretarial services to large corporations (basically making sure companies do everything by the book); act as manager of both corporate bonds and pension funds; and providing whistleblowing services to companies, allowing employees to confidently report company wrongdoing.

It’s a business mix that has delivered revenue growth through thick and thin (Covid, inflation and Liz Truss).

It accounts for one-fifth of the trust’s assets and provides a solid foundation on which Henderson and Foll can build a complementary investment portfolio.

That portfolio consists of 145 stocks, most of which are listed in the UK. It includes the usual dividend-producing suspects – such as BP and Shell and banks Barclays, HSBC, Lloyds and NatWest – but much more.

Henderson, speaking to me from Kenya, where he was busy enjoying elephant encounters rather than his usual ride of FTSE 100 directors, defends the diverse portfolio on risk mitigation grounds.

“If a company I own cuts its dividend,” he told me, “it’s not a problem. For example, when BP cut its dividend in 2020, it had no impact on the income Law Debenture was able to pay out to investors.

“Indeed, the trust increased its dividend by 5.8 percent.” The rich income IPS brings to the trust also allows Henderson to invest in companies in anticipation of paying dividends, for example the banks in 2020.

It also allows him to invest a small portion of the portfolio in smaller companies that do not generate any income, such as renewable energy company Ceres Power and oil and gas exploration company Deltic Energy.

While both companies are currently loss making and have yet to pay dividends, Henderson is confident they will prove to be smart investments – even if taken over by rivals.

Last week I asked Denis Jackson, CEO of Law Debenture, if the trust would ever sell IPS, which would potentially be a windfall for shareholders. He said it was a no go. His view is that it’s a marriage made in heaven that has worked for 133 years – and he sees no reason why it couldn’t work for another 133 years.

With an annual income of around 3.6 per cent, plus the prospect of capital gains, Law Debenture represents a good entry point for investors seeking exposure to the UK stock market.

A little cocky, yes. But potentially rewarding on a five-year time horizon. In investment terms, more like a Kenyan elephant (sturdy and reliable) than a tiger (volatile).

Now banks are banning services flat

Banks may be inundated with dividends, but they are quickly exhausting their arsenal of branches. Since the start of last year, a total of 722 have closed — or been announced for imminent closure — with many more to come before the end of the year.

Of the branches that remain, many of their services are undermined by shortening opening hours. Even more worryingly, access to counter-based services (to pay a check or withdraw cash, for example) is being restricted, forcing customers to go to an ATM, point-of-sale terminal or online.

Walking down London’s Kensington High Street a few days ago, I was drawn to a sign on the window of the Barclays branch warning passers-by of changes coming from the end of June. As a result, half an hour of the opening hours of the branch will be canceled every day from Monday to Saturday afternoon. In addition, the counters are not available on Saturdays and are closed Monday to Friday 2.5 hours before the branch closes at 4:30 pm.

Our opening hours are temporarily changing. It will say, “Even if your branch is closed, your bank is still open – you can do most of your banking through the Barclays app.”

I would bet my pension that these temporary changes will never be reversed. Nor would I be surprised if the next step is to close the branch – or make it cashless.

Heathrow fraudsters back with M&S scam

Last month, fraudsters used Heathrow’s good name to persuade people to take out sustainable bonds, allegedly paying fixed interest rates (up to 7.125 percent). We tipped off the airport owners, who alerted their cyber-fraud team.

But these fraudsters are determined people. They’re back, this time under the name Marks & Spencer to offer M&S sustainable bonds that pay – yes, you guessed it – 7.125 percent.

Marks & Spencer has been tipped. If you receive the M&S offer, please let me know and delete it.

Clarity about equity is welcome

The equity release market has come a long way since the early 1990s when some customers got a terrible deal from plan providers.

Aided by an influx of reputable financial brands into the industry – such as Aviva, Legal & General and Building Society Nationwide – equity release is now a product fit for purpose.

In the simplest terms, it allows homeowners to release some of the equity tied up in their property for day-to-day living. The equity, taken out all at once or in installments, is unlocked through a fixed-rate loan, where the interest is usually rolled over instead of being paid each month. The debt is paid off through the sale of the home when the homeowner dies or receives long-term care.

Last year, 50,000 new plans were signed and the total amount lent reached a record high of £6.2 billion.

Still, releasing home equity remains expensive and can be difficult for many people (homeowners and their grown children) to get their brains around.

The Equity Release Council, the industry’s trade association, recognizes these issues. That is why it now wants companies to formulate their rates in a way that is easy to understand (standardised and free of jargon) – and that they can be compared between providers.

I trust that lenders will respond positively to this initiative. After all, it’s in their best interest – and that of their customers as well. Opacity breeds mistrust while transparency breeds trust.