The Scottish Investment Trust PLC invests internationally and is independently managed. Its objective is to provide investors, over the longer term, with above-average returns through a diversified portfolio of international equities and to achieve dividend growth ahead of UK inflation. Today it announces its results for the year to 31 October 2017.
Highlights
· Step change 48.1% increase in regular dividend to 20p.
· Additional special dividend of 5p.
· Total dividend increase of 11.1%.
· Share price total return +12.8% and NAV total return +11.0%
Chairman's Statement
Performance
I am pleased to report that during the 12 months to 31 October 2017 a combination of capital appreciation and strong dividend income meant that the Company delivered another year of robust total returns. Over that period, the share price total return was 12.8% and the net asset value per share (NAV) total return (with borrowings at market value) was 11.0%.
The Company does not have a formal benchmark but, by way of comparison, the sterling total return of the international MSCI All Country World Index (ACWI) was 13.3% while the UK based MSCI UK All Cap Index total return was 13.5%. As noted in previous communications, elsewhere in this statement and in the Manager's review, we do not expect the Company's portfolio return to match any particular index return over any defined period due to the contrarian nature of the portfolio's composition. Our contrarian approach aims to achieve above average long-term performance. Given this focus and the fact that we expect to make more of our gains in particular market conditions, we believe that a period of at least five years is required to evaluate the Company's returns.
With the Company's portfolio rebalanced towards the high conviction, global contrarian approach described below, the Board now believes that the Company will generate a higher level of dividend income through an investment cycle than has previously been the case. The Board wishes to ensure that shareholders have greater clarity about their future dividend expectations and therefore recommends a positive step change increase in the regular dividend. I explain this later in this statement.
Move to quarterly dividend payments
I announced in the interim report that the Company intended to adopt a quarterly schedule of dividend payments starting in the 2017/18 financial year. The Board recognises that predictable, regular distribution of income is desirable for the majority of our shareholders.
The proposed final and special dividends, which, if approved, will be paid to shareholders in February 2018 will mark the last dividends of the current distribution schedule before we move to quarterly payments. The Board's target is to declare three quarterly interim dividends of 5.0p, in the year to 31 October 2018 and recommend a final dividend of at least 5.0p for approval by Shareholders at the Annual General Meeting in 2019. It is intended that the first quarterly dividend will be paid in May 2018. The second and third quarterly dividends are expected to be paid no later than August and November 2018. The final dividend will be reviewed in accordance with the Board's desire to continue the long track record of annual dividend increases and the aim of the Company to provide dividend growth ahead of UK inflation over the longer term.
Outlook
I have previously discussed the anti-establishment mood that seems to have characterised recent voting on both sides of the Atlantic. The most obvious examples are the Brexit vote, the election of Donald Trump and the unexpected result in the UK 'snap' election.
President Clinton's victory in the 1992 US Presidential election has often been attributed to the slogan “It's the economy, stupid” and this catchphrase remains highly relevant today. Large sections of the population, in a number of countries, feel disadvantaged in the current economic environment. Government policies have favoured asset prices with unintended consequences for the cost of living.
Markets do not operate in a vacuum and, to date, have generally interpreted this shift in the political climate as a positive development. This is justified, to some extent, as stimulatory measures to boost the 'real economy' may well improve the prospects of sections of the corporate sector. On the other hand, some of the more radical measures occasionally mooted, no doubt with the best of intentions, have potential to harm sections of the corporate sector and will not necessarily achieve their end purpose.
The US Federal Reserve, which sets the tone for global monetary policy, has continued to increase interest rates from a very low base and has started tentatively to reduce the stockpile of bonds purchased to lower long-term interest rates. Other central banks have taken this cue and have started either to reduce, or at least slow, the rate of increase in stimulatory measures. This is evidenced by the recent interest rate increase by the Bank of England and the planned reduction in European Central Bank bond purchases. Markets have undoubtedly benefited from low long-term interest rates and it remains to be seen how dependent these low rates are on central bank largesse.
As ever, there are a number of events which could potentially destabilise markets if the worst fears come to pass, or potentially boost markets if they are successfully resolved. Of the prominent events, tension in the Korean peninsula remains confined to sabre-rattling while some modest progress seems to have been made in the Brexit negotiations.
The Board is pleased with the progress made to transform the investment approach, to increase the regular dividend, to reduce the cost base and to improve the profile of the Company. It now believes that the Company is differentiated, competitive in costs and an attractive investment vehicle focused on delivering above-average returns and dividend growth over the longer term.
James Will
Chairman
8 December 2017