LAW DEBENTURE CORPORATION: Growing income for the last 12 years

Like many mutual funds, Law Debenture Corporation’s name doesn’t exactly whet investors’ appetites for long-term returns from stocks.

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

It is an investment objective that Law Debenture has fulfilled quite well in recent times. Over the past 12 years, it has provided investors with growing income – and despite the difficult economic backdrop, it looks like there will be 13 when the final two quarterly payments for the current fiscal year are made.

“I’d be surprised if the annual dividend doesn’t go up again,” said Laura Foll, who manages the trust’s equity portfolio with James Henderson (both of whom work for UK asset manager Janus Henderson).

So far this fiscal year, the trust has paid a dividend of 14.5 pence per share in the first half, compared to 13.75 pence last year. Income benefits are equal to an annual income of the order of 4.8 percent. In terms of overall return – capital plus income – it has also delivered confidence, especially when compared to its competitors.

Over the past five years, it has generated a total return of 55 percent, better than any other UK-listed trust.

In the past year, it has been only one of six to have made positive returns – the others being The City of London (also managed by Janus Henderson); Traders (Allianz); Temple Bar (Red Wheel); and Edinburgh (Liontrust) and Shires (Abrdn).

Law Debenture’s assets fall into two different silos. The first, representing the element of ‘law’, is a privately held international company called Independent Professional Services. It makes money by providing trustee services to both pension funds and corporations – as well as providing other business services.

Currently, it represents about one-fifth of the trust’s assets, but provides one-third of the income that is passed on to shareholders through dividends. The remaining 80 percent of the assets are 150 stocks managed by Foll and Henderson, most of which have record-breaking dividends.

“Since the trust has 20 percent of its assets in just one holding company,” Foll says, “it’s important to ensure diversification across the rest. The result is a low conviction portfolio with no more than 3.5 percent of largest holdings.’

These are leading companies known for their dividends, such as Shell and BP. With the IPS business providing a healthy share of income, the two managers can invest some of the trust’s assets in companies that currently offer few dividends but the prospect of healthy payments in the future.

Entertainment company Flutter, which currently does not pay a dividend, is in the top ten, while executives have increased its stake in manufacturer Morgan Advanced Materials. Morgan significantly increased its interim dividend payment for the current fiscal year and recently said earnings 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 decline in corporate earnings. Historically, she says, it looks cheap.

The trust’s stock exchange identifier is 3142921 and ticker LWDB. Recurring annual costs are low at 0.48 percent.