So far, 2023 has been a poor year for shareholders in Scottish Mortgage Investment Trust (LSE: SMT). Since the start of the year, the shares are down 14%. But today there has been good news about a big jump in the Scottish Mortgage dividend.
Might there be more such rises in future – and should I capitalise by adding Scottish Mortgage to my portfolio?
Rolling in cash
Today, the trust managers announced that the annual Scottish Mortgage dividend would be raised by more than 14%. That is a notable jump for any company, let alone a long-established FTSE 100 share.
There is a specific reason for the raise: the trust managers are rolling in cash. During the past year, income received more than doubled. That was because companies in Scottish Mortgage’s portfolio, including Kering and ASML, raised their dividends.
As an investment trust, Scottish Mortgage is not allowed to retain more than 15% of income. The big increase is therefore a way to share out the trust’s excess income after a bumper crop of dividends.
Negligible yield
However, even after the rise, the prospective Scottish Mortgage dividend yield is just 0.7%.
Some FTSE 100 shares I own are yielding over 10 times that amount. So that sub-1% yield would not be a significant factor for me deciding to buy shares in the Edinburgh-based investment trust.
Dividend commitment
Still, yield is only one aspect of a dividend. The latest increase continues a run of raises from the trust in recent years, albeit more modest ones.
The last time the Scottish Mortgage dividend was cut was following the Wall Street crash of 1929 and the Great Depression. In other words, the dividend has not been reduced in over 80 years.
Although past performance is not a guide to what will happen in future, management continues to emphasise its commitment to the dividend.
Today’s announcement stated, “we acknowledge the importance of providing a predictable and growing level of dividend income, to help shareholders plan for their own overall portfolio income needs.”
Dividend forecast
That suggests that management will aim to keep increasing the Scottish Mortgage dividend in coming years.
Indeed, today’s statement forecast future increases that are “consistent with the more modest uplifts in recent years unless higher levels are required to maintain investment trust status”.
Not only does that suggest the board plans to keep raising the payout, it also points to the possibility of occasional bumper raises in future like the one seen today.
Attractive option
Although the Scottish Mortgage dividend itself is not enough to tempt me to invest, I would happily buy the shares if I had spare cash to invest.
Management said it is “confident that Scottish Mortgage merits a place in all portfolios”. I think that is strong stuff for a share that has grown 22% in five years and has a yield below 1%. Some shares have performed far better in that period.
There are future risks too. A further tech downturn could hurt the tech-heavy portfolio and send the shares down. In the long term, though, I remain upbeat about the outlook for Scottish Mortgage.
But I would be happy to own the stock. I think the proven approach of long-term investing by identifying trendsetting companies at an early stage could be highly rewarding in future.
