The unique investment trust that gets a steady income from legal services: The £773m LAW DEBENTURE fund keeps the dividends flowing alongside decent growth
Investment trust Law Debenture will soon announce the final quarterly dividend payment to shareholders for its 2020 financial year.
Although it refuses to reveal what the payment will be, it is likely to result in another year of dividend growth for the £773million fund – a commendable achievement given the difficult dividend backdrop.
While the trust, managed by James Henderson and Laura Foll of investment house Janus Henderson, is classified as a UK equity income fund, it is set up differently from most of its rivals.
The trust’s biggest holding is in Law Debenture, an unquoted business that the trust takes its name from
For a start, its biggest holding is in Law Debenture, an unquoted business that the trust takes its name from. This company, located in London, provides a range of professional services to businesses.
They include company secretarial facilities, trustee work for both pension funds and companies issuing corporate bonds – as well as a corporate whistle-blowing service.
As a result, it throws off a lot of income which provides the trust with 35 per cent of the income it pays out to shareholders by way of dividends.
Denis Jackson, chief executive of Law Debenture, says: ‘What we give the trust is a high quality source of income that is often counter-cyclical. Some of our services are most wanted when the economy is under stress.
‘For example, if a company needs to restructure the payments on a corporate bond, it’s work we would do.’
This reliable income stream allows Henderson and Foll to adopt a somewhat unconventional approach to the portfolio of 120 quoted stocks they manage alongside this unquoted holding.
Although they search out traditional income stocks – the likes of GlaxoSmithKline, BP, Shell and HSBC – the solid income from the professional business enables them to invest in some ‘zero yielders’ where the emphasis of the companies is very much on growth. This has helped boost the trust’s overall performance.
The trust invests in traditional income stocks, but also in some ‘zero yielders’
For example, one of the trust’s strongest performing holdings is AIM-listed Ceres Power whose share price has shot up in value by more than 280 per cent over the past year.
Its development of cutting-edge fuel cell technology has attracted the interest of German engineer Bosch which has taken an 18 per cent stake in the business.
Ceres has yet to pay a dividend. ‘I’m trying to keep the holding down to three per cent of the trust’s quoted assets,’ says Henderson. ‘It means I am constantly selling down the stock as its price rises.’
The trust also has a sizeable slice of its assets in overseas quoted firms.
It has just sold out of Microsoft but has holdings in car manufacturers Toyota and General Motors – firms that Henderson believes will benefit from the march towards electric cars. General Motors has already said it intends to go all electric from 2035 while Toyota is on the cusp of launching its first all-electric car.
Indeed, decarbonisation and renewable energy are recurring themes through the trust’s portfolio with other key holdings including clean fuel company ITM Power and hydrogen power generation company AFC Energy – both UK listed.
‘Even Shell is part of the decarbonisation story,’ says Henderson. ‘Last week, it announced an increase in its quarterly dividend, but is still is spending a lot of money on renewable energy.’ It is still a top ten holding in the fund.
Law Debenture is listed on the London Stock Exchange. Its stock market identification code is GB0031429219 and its shares closed on Friday at £6.70. The income it pays is equivalent to an annual 4 per cent and the trust’s annual charges total 0.3 per cent.