What sort of dividend would we expect to earn from owning a single share in an investment trust?
The answer depends on what the investment trust is.
Today, one trust declared a final dividend of £51.50 per share. That dividend alone would be enough for me to buy a dozen shares in City of London Investment Trust, or 56 shares in the European Assets Trust.
So is this something I ought to add to my portfolio?
Big money
The stock in question is the Lindsell Train Investment Trust (LSE: LTI). Its share price is close to £1,000.
So, despite the huge dividend per share, the yield is a more down-to-earth 5.1%. I certainly regard that as decent, but it is not exceptional. Indeed, City of London yields 5% at the moment, while European Assets Trust offers around 8%.
Having a four-figure share price does not necessarily mean that the investment trust is a better or worse choice for my portfolio than the alternatives. That depends on what I pay relative to the future value on offer.
It does have a practical effect though — I would need at least £1,000 even to buy a single share in Lindsell Train Investment Trust.
Long-term performance
Currently, the investment trust trades at a discount to its net asset value.
But as some of its investments are in unlisted companies, valuations can be difficult for a small private investor like me to assess. Indeed, its exposure to unlisted equities is one of the risks that puts me off buying Lindsell Train Investment Trust for my portfolio.
Its long-term performance has also not been impressive. The big dividend sounds attractive. But over five years, the share price has lost 1.5%. That is not a large loss. But it is still a loss when, as a long-term investor, what I am chasing are capital gains.
Having touched £2,000 back in 2019, the current share price around half of that is fairly close to its 52-week low.
Could that offer me a bargain?
My approach
The answer is that I simply cannot tell.
The investment trust owns a 24% minority stake in fund manager Lindsell Train Limited. That accounts for around 40% of the trust’s net asset value.
That valuation uses a methodology that has been amended after taking professional advice. I have no reason to question that methodology. But equally, I am not in a position to do the maths myself.
The company holds £118m in listed investments including shares like Diageo and A G Barr. It also holds £103m in an unlisted investment and funds managed by Lindsell Train Limited.
Unlisted investments can sometimes turn out to be highly lucrative. A wider pool of investors can increase the value of a company once it is listed, although that does not always happen.
But for me, a substantial part of Lindsell Train Investment Trust’s net asset value is in assets that I personally am not equipped to value (unlike, say, Diageo or AG Barr whose share prices I can access in an instant). That makes it hard for me to assess what I think the trust’s shares are worth — and whether the current price is a bargain.
So, despite the monster dividend, I will not be buying.
