Founded in 1873, Scottish American Investment Company (LSE: SAIN) is celebrating its 150th anniversary this year. It has an amazing 48-year record of increasing its dividend. But I think this FTSE 250 stock looks well placed to continue rewarding shareholders for a few more years yet.
Peace of mind
SAINTS – as it’s commonly known – is an investment trust run by Edinburgh-based asset manager Baillie Gifford. Its objective is to raise the dividend at a faster rate than inflation by increasing capital and growing income.
The portfolio is mainly made up of global equities, but it also contains bonds, property and other asset types. Its average holding period for an investment is eight years.
Incredibly, the trust hasn’t cut its dividend since 1938, just before World War II. This easily qualifies it as a Dividend Aristocrat. It’s little wonder then that SAINTS co-manager James Dow has said: “I like to think we provide our investors with peace of mind“.
While dividends aren’t always guaranteed, I think the payout is one of the safest I’m going to find in the UK market today. The dividend yield is 2.7%, which doesn’t sound much compared to the FTSE 250’s average yield of 3.5%.
But the trust also has a good record of growing capital alongside income. The shares are up 41% in five years, outperforming both the FTSE 250 (+1.5%) and the FTSE 100 (+9.7%) over the same period. Indeed, in terms of share price total return, SAINTS is the best-performing fund in its global equity income peer group over the past five years.
It was this combination of potential capital and dividend growth that led me to become a shareholder last year. The £900m-capitalised trust does have an annual ongoing charge of 0.62% a year. But I think this is a small price to pay for the potential of rising long-term growth and income.
Steady compounders
The trust’s strategy is to identify and invest in steady, long-term compounders that throw off resilient dividends. It invests in any sector or geography where it finds such companies.
Its top investment is pharmaceutical giant Novo Nordisk, the maker of insulin. The managers are bullish on the potential of its antidiabetic drug semaglutide as a weight-loss treatment. They said: “Future earnings growth from this innovation could be considerable.”
Other top holdings include PepsiCo, Microsoft and Nestlé. It’s also invested in leading lithium producer Albemarle. The trust commented: “We expect the environmental benefits that lithium enables will lead to strong growth in capital and dividends.”
Looking to the long term
The full-year dividend for 2022 was 13.8p per share. That was 9% higher than 2021, but still below last year’s double-digit inflation. And UK inflation is still running close to a 40-year high this year.
So there’s a risk that SAINTS once again fails to meet its stated objective of growing income faster than inflation. If that happens, the stock could fall out of favour as investors look elsewhere for higher yields.
However, I’m encouraged by its exceptional long-term record. The dividend has held steady through a world war, a cold war, periods of high inflation, and numerous financial crashes. As an investor, this track record helps me sleep well at night.
If I didn’t already own the stock, I’d buy it in a heartbeat today.
