City of London: the stocks powering our dividend growth

It's a pleasure.

Well, I think we're particularly known for our dividend growth record. We've grown our dividend every year for 59 years in a row, and we've benefited from an investment trust structure which has enabled us to do that, as well as a core of consistent companies. But we have overall a total return objective, so income and capital growth, and we've beaten the index over the long term with a conservative investment strategy, and I think we're well known for that as well.

So in 2025, we've particularly benefited from a position in the bank sector, which about two years ago, having been quite low in banks ever since before the financial crisis, we moved to a sort of overweight position in banks. And that was taking a view about something called the structural hedge, which is the balance the banks hedge out on a kind of five- to seven-year view, which the UK banks do quite conservatively. And these hedges were taken out when interest rates were ultra low, now getting rolled over at much more attractive interest rates. And this is a kind of tailwind to profits which, in our view, was being underestimated by the market, and we have seen very strong performance by the bank sector. Against that context, in terms of the main change, we've seen sort of takeover activity in our portfolio, in particular, for example, Direct Line, the insurer, was taken over by Aviva, which we already held, and we bought Admiral as a kind of replacement for that, a very good motor insurer. DAL, which is a kind of motor component stock, was also taken over. So we've seen takeovers.

We quite like real estate investment trusts at the moment, and one we've bought is Big Yellow, the storage company, which actually very soon after we bought it received a takeover approach from Blackstone. But I would say the kind of main theme really has been our position in financials and the banks, which has been helpful to both capital performance and dividend growth for the portfolio.

No, we've been very clear that we are not going to do an enhanced dividend policy, and in our chairman's statement recently we made absolutely clear the board is firmly against that. We think when everything's going up, you know, people don't notice a bit of the dividends paid out of capital, but we think in flat or declining markets shareholders will be very upset to see that part of their dividend is being paid out of their own capital. It's like robbing Peter to pay Paul. We just think it's a flawed strategy. It hasn't been tested in bear markets, and we will have another bear market at some point. So we definitely intend to continue to pay our dividend out of the dividends we receive, and you know we certainly are very comfortable with that strategy.

We're seeing decent dividend growth across a lot of our portfolio and, you know, confident we can build on our record. But as I said earlier, we do use the investment trust structure in difficult years for dividends, such as during COVID when FTSE 100 dividends went down by 36% and we carried on growing our dividend. And we did it because in the good years we can put money into the revenue reserve, up to 15% of the earnings, and that builds the revenue reserve up, and then you use that in difficult years for dividends. So that is a kind of advantage investors just have over open-ended funds.