Opinion

How are the mighty fallen

Dividend culture as we knew it is dead, according to Kepler's David Johnson, but investment trusts offer a solution...
David Johnson
Last update 28 July 2021

Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

The dividend is dead, long live capital growth. In my view we have entered a golden age for both growth investing and capital raising. Thanks to ultra-low interest rates and quantitative easing it has never been easier for companies to raise capital to reinvest into profitable opportunities. Nor, one might argue, has it ever been more easier for growth investors, with historically low interest rates allowing ‘long-duration’ growth companies to justify higher valuations.

Over the last five years the MSCI ACWI has returned an impressive 83.9%, compared to the 42.5% of the MSCI World High Dividend index. And, while the High Dividend Index does offers investors a yield of 3.39%, twice that of the MSCI ACWI’s 1.65%, we wonder whether it would have been right for many investors to sacrifice so much total return for a higher underlying income. Of course some investors may prefer income over capital growth for tax reasons, but the beauty of the investment trust structure from an income investors’ point of view is it allows capital gains to be distributed as income, and so the question becomes much simpler.

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