Solid performance by the City of London Trust

In its interim results for the six months to the end of December the popular £2.1bn City of London Trust (LON: CTY) made an NAV total return of 4.5%, marginally behind the 5.1% increase in the FTSE All-Share benchmark. Since then the NAV is up a further 6.9% as risk assets rallied at the start of the year.

City has a conservative management style that prioritises sustainable income and long-term capital growth. It mainly invests in UK equities with a bias towards large, multinational companies, whose overseas revenues provide a degree of international exposure.

The ten largest positions at the end of January accounted for a third of the assets and included well-known names such as British American Tobacco, Royal Dutch Shell, Diageo, BAE Systems and Unilever. There were just three new additions during the period: the packaging manufacturer, DS Smith; Morgan Advanced Materials, which makes technological components and NatWest.

Writing in the accounts, Chairman Sir Laurie Magnus said that the reopening of the Chinese economy after its Covid lockdown is positive for global growth, while lower oil and gas prices are helpful for consumers in the UK and overseas.

“The dividend yield premium of UK equities over bank deposits and 10-year Gilts has narrowed, but equities offer the prospect of dividend growth and can therefore provide some element of hedge against inflation.”

Reliable Source of Income

One of the main attractions of the trust is the income, with City having built up an unblemished record of 56 consecutive years of dividend increases. The shares are currently yielding an attractive 4.7% with quarterly distributions.

During the latest reporting period earnings per share fell 1.7% to 8.79p, mainly due to the reduction in dividends from miners Rio Tinto, Anglo American and BHP as a result of lower commodity prices. The decline was partially offset by increases from the banks and oil companies.

Two interim dividends of five pence each have been declared and the Board is confident that it will be able to increase the annual total dividend for the 57^th consecutive year. The yield is significantly higher than the 3.8% average measured across the trust’s UK equity income peer group.

A Lot To Like

The broker Numis views City as an attractive core holding for investors seeking income from UK equities. Manager Job Curtis, who has been in place since 1991, has built up a strong track record with a 10 year NAV total return of 103% compared to 88% for the FTSE All-Share.

Its shares are consistently in high demand and they often trade at a premium to NAV. In order to satisfy the interest the fund regularly issues new stock and was the largest issuer within the UK Equity Income sector in 2022.

City is a dependable option for anyone looking for a cautiously managed portfolio of large UK equities. It is particularly attractive for income seekers with its unblemished record of annual dividend increases and high yield, with a further welcome feature being the low ongoing charges of 0.38%.