When it comes to dividends, reliability’s everything. A high yield might catch the eye, but it means little if the payout’s cut during tough times. Chasing yield alone is rarely a winning strategy, as even the biggest companies have reduced dividends when conditions have turned.
That’s why I think the best dividend stocks are the ones with long track records of consistency. Raising a dividend year after year for decades, even through financial crises, is a strong sign of resilience.
British American Tobacco has often been cited as one of the UK’s most dependable dividend payers. But with global smoking rates falling and regulations tightening, I worry about whether it can keep delivering in the decades ahead. For reliability, I prefer something safer, so I’m looking at a UK investment trust with one of the most remarkable dividend histories on record.
City of London Investment Trust
City of London Investment Trust (LSE: CTY) has raised its dividend for 59 years in a row. That’s one of the longest unbroken streaks in the world, and a record that instantly puts it in the elite category for income investors.
At present, the trust offers a dividend yield of 4.25%. The payout ratio sits at 47.5%, which suggests there’s plenty of headroom to keep distributions flowing. On average, investors have enjoyed around 3% annual growth in the dividend, which may not sound spectacular but does underline the trust’s steady approach.
The trust isn’t expensive either. With a price-to-earnings (P/E) ratio of 11.3 and a price-to-book (P/B) ratio of 1.18, it looks fairly valued compared with many UK shares. Its balance sheet’s healthy, with debt comfortably covered and a return on assets of 10% — impressive for a diversified fund.
How’s it managed?
Running costs are also low, with an ongoing charge of just 0.37%. Gearing sits at 5%, and at the moment the trust trades at a small 2% premium to its net asset value. That premium reflects the strength of its reputation.
Top holdings include some of the UK’s best-known dividend stocks: HSBC (5.2%), Shell (4.9%), British American Tobacco (4.5%), BAE Systems (4.2%), and RELX (4.2%). It’s a portfolio tilted towards financials, energy and defence — sectors that have traditionally delivered strong cash flows.
There are, of course, no guarantees. The trust’s heavily concentrated in UK shares, which makes it vulnerable to domestic market downturns. This may be why growth’s been on the slower side. Over the past decade, the share price has risen just 25%, which lags well behind the broader market.
For example, £20,000 invested 20 years ago would have only grown to around £100,000 today (with dividends reinvested). Investors hoping for more rapid capital growth might be disappointed.
The hands-off approach
For me, City of London Investment Trust’s all about peace of mind. It may not offer rapid growth, but its dividend track record’s second to none.
I think it’s worth considering in any long-term income portfolio, particularly when combined with a dividend reinvestment plan (DRIP) to steadily compound gains over time.
It might not be flashy, but when it comes to reliable UK shares, this trust’s hard to beat.
