Scottish American

With a strong track record for capital appreciation and income, the past five years haven’t seen any better opportunities to enter SAINTS…

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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. 

Scottish American

Scottish American Investment Company (SAINTS) aims to offer investors real dividend growth through increasing income and capital over the long term. The portfolio is predominantly comprised of equities, but the manager also has the capacity to invest in bonds, property and other asset classes.

James Dow and Toby Ross manage the portfolio, searching for companies with a dependable yield and good growth prospects. They believe that companies which are committed to paying out dividends are generally managed better and utilise their capital more appropriately.

Since the shift in strategy in 2015, when the managers moved from focussing purely on income to dividend growth, the trust has consistently outperformed the benchmark and its peer group. As can be seen in the Performance section, over the five years to 18 March 2020 the trust has generated NAV total returns of 60.7%, in comparison to 24.9% from the AIC Global Equity Income sector and 41.4% from the FTSE All-World. In fact, the trust has only underperformed the benchmark in one of the past five calendar years, and this was by just 0.2% in 2016.

As we discuss in the Dividend section, SAINTS’s record for dividend growth is as impressive as its history for capital appreciation. The trust has grown its dividend every year for the last 40 years, and has done so at a rate equivalent to 2.5% per annum over the last five. Currently the trust is yielding 3.8%, the lowest in the sector; however, this is perhaps inevitable given the trust also focusses on capital appreciation.

SAINTS has consistently traded on a premium over the past three years, trading in a range between a premium of about 6% and a discount of around the same level. However, at the time of writing the recent uncertainty has seen the trust slip to a discount of more than 7%.

Kepler View

SAINTS has long been a standout trust in the AIC Global Equity Income sector and recent events have only further illustrated why. The trust has outperformed peers and the benchmark over the past five years, during what has been a strong bull market across the globe. However, despite being relatively highly geared, the manager has also been able to protect capital (in relative terms) during a period of great uncertainty in 2020. This is illustrated by the trust losing just 14.6% of NAV total returns over the year thus far, relative to a sector-wide average loss of more than 20%. This is largely due to the diversified approach the manager takes, and the capacity for its managers to split the portfolio across a number of asset classes. Alongside the strong capital appreciation, SAINTS has continued its 40-year track record of growing its dividend. This dividend is 1x covered by revenue reserves which will be particularly important in 2020, when we imagine a number of underlying companies will be under pressure to cut their dividends.

Despite the strong track record, recent events have caused the trust to slip (at the time of writing) to a discount not seen for five years (7.3%). We see this as an extremely attractive entry point into a trust that has proven itself time and time again, with an attractive income prospect which should be able to continue, regardless of the wider macroeconomic market.

bull bear
Strong performance relative to peers OCF at the costlier end of the sector
Impressive track record for dividend growth fully covered dividend Huge amount of uncertainty surrounds global markets
Trading at a rare discount Relatively high gearing adds to risks
William Sobczak
William joined Kepler Partners in February 2018 as an investment trust analyst. Prior to joining, William graduated from the University of Western Australia, with a BSc in Psychology.

Fund History

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