Right, let’s unpack what CT UK Capital and Income Investment Trust (CTY) has just told us. The headline grabber is undeniable: they’ve hiked their dividend for the 31st consecutive year. That’s a serious track record, earning them ‘Dividend Hero’ status from the AIC. But scratch beneath that impressive income story, and the picture is a little more nuanced. Here’s the breakdown.
The Dividend: Still the Shining Star
First, the good news – the income machine keeps humming.
- The Hike: The total dividend for the first half (covering payments in March and June 2025) is 5.90p per share. This represents a 3.5% increase compared to the same period last year (5.70p).
- The Yield: Based on the end-of-period share price (318p), this provides shareholders with an annualised yield of 4.0%.
- The Streak: That 31-year consecutive increase record isn’t just a number; it’s a testament to the trust’s core focus on delivering reliable, growing income through thick and thin. Chairman Nicky McCabe explicitly states the board is “proud of this achievement and aims to continue to grow our dividend to extend the record further.”
Revenue return per share for the half-year was 5.0p, meaning the dividend was 85% covered by earnings. The trust anticipates higher income in the second half and holds a Revenue Reserve of £9.2 million, providing a solid buffer to support future dividend growth ambitions. Crucially, the current dividend growth (+3.5%) is comfortably ahead of the reported Consumer Price Inflation rate of 2.6% to March 2025.
The Performance: A Challenging Backdrop
Now, for the less rosy part. The six months to 31 March 2025 were tough for the trust’s capital performance:
- NAV Total Return: -1.6%
- Share Price Total Return: -2.7% (Share price ended at 318p)
- Benchmark (FTSE All-Share) Total Return: +4.1%
So, a clear underperformance against the broader UK market. Why the disconnect?
Chair Nicky McCabe puts it down to the highly concentrated nature of the UK market rally. The FTSE All-Share’s gains were largely driven by a small number of very large companies. CTY’s investment manager, Julian Cane, deliberately favours opportunities outside this mega-cap space, believing medium and smaller-sized companies offer better long-term growth potential and more attractive valuations.
The rub? Over the last six months, this positioning hurt. While the index (weighted by size) rose 4.1%, the *median* company in the index actually fell 4.1%. CTY’s portfolio, leaning towards these mid/smaller caps, suffered accordingly. McCabe acknowledges this “size bias” has been a headwind for several years but suggests such periods often precede strong reversals.
Share Price, Buybacks, and the Discount
The share price decline slightly outpaced the NAV decline, leading to:
- Average Discount during period: ~3.5%
- Discount at Period Start (30 Sept 2024): 2.9%
Discount at Period End (31 March 2025): 4.1%
The Board is active in managing this discount. They bought back 1.6 million shares across 16 occasions during the half-year at an average discount of 4.1%. These buybacks aim to support the share price (adding marginally to NAV for remaining shareholders) and provide liquidity.
Balance Sheet & Other Points
- Gearing: The trust renewed its £20 million loan facility with RBSI (down from £28m at the start of the year, reflecting investment realisations). Borrowings stood at £20m at the period end.
- Board Changes: Nicky McCabe succeeded Jane Lewis as Chair. John Blowers (ex-Interactive Investor) joined the board, bringing direct-to-consumer marketing experience.
Outlook: Uncertainty and Valuation
McCabe doesn’t mince words about the current climate: “in recent decades it is difficult to think of a parallel for the current economic and geo-political situation.” Volatility is high, centred largely on the US, but impacting globally.
However, the core message for shareholders is one of long-term focus and valuation discipline:
- Ignore the Noise: “It is important for investors to focus on the long-term, to try to ignore the noise of current events and not to act hastily.”
- Valuations Matter: “Your investment manager believes valuations are one of the strongest indicators of future investment performance, and on that front the opportunities for the UK stock market and a considerable number of UK companies, look particularly attractive.”
- Steady Hand: The Board emphasises confidence in long-serving manager Julian Cane (28 years at the helm).
They also posit that the UK’s political situation (a large working majority) offers “a relative haven of stability” for international investors, even if the UK isn’t immune to global shocks.
The Bottom Line
CT UK Capital and Income is delivering exactly what its name promises on the income front – a 31-year unbroken record of growth and a solid 4% yield, well-covered and backed by reserves. That’s no small feat, especially in this environment.
The capital performance was undeniably weak over the past six months, a direct result of its conviction in undervalued UK mid/small caps struggling against a narrow, mega-cap led market. The trust is sticking to its guns, believing fervently in the long-term value opportunity this presents. For income-focused investors prioritising that reliable, growing payout, the dividend hero status remains compelling. For those also seeking near-term capital growth, patience and belief in the manager’s valuation-led approach are required. It’s a classic case of investing not being a sprint, but a marathon – and CTY is very much focused on the long run.
