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Henderson’s Lowland looks for divi boost after Conviviality hit

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Henderson’s Lowland looks for divi boost after Conviviality hit

Lowland (LWI), the UK equity income investment trust run by veteran value investor James Henderson, has made an accounting change to give it more leg room to raise dividends after a challenging six months saw the portfolio hit by the collapse of Conviviality (CVRC).


The £419 million listed fund currently pays all management fees and finance costs from the investment income it earns and allocates to its revenue account. From October it plans to change this and pay half of its costs from the investment gains recorded in its capital account instead (although performance fees, which are levied on top of the annual management charge when returns exceed a pre-set threshold, will continue to be taken just from capital).

The 50:50 split of expenses between revenue and capital is already common among investment trusts. Adopting the new policy will leave Lowland with a bit more income for dividend payments to shareholders.

Had it applied in its last financial year to the end of September 2017, earnings per share would have increased from 49.1p to 54.5p.

Lowland, which currently yields 3.3%, has raised its dividend every year from 1975 with the exception of 2009 when it remained unchanged.

Interim dividends in April and July of this year will total 26p per share, up 8.3% when compared to last year. Between April and October, the board plans to pay out a total dividend of 53p, which would represent an 8.2% increase on the previous year.

Conviviality collapse

Over the six months to the end of March, Lowland’s net asset value (NAV) including dividends fell 3.6% compared to a 2.3% fall in the FTSE All-Share index. The collapse of Conviviality, the owner of Bargain Booze, was the biggest detractor from performance after it had to be written off entirely after the company collapsed into administration in April.

‘The company unravelled very quickly as a result of a weakness in trading and very poor financial controls. We had been investors since it had come to the market in 2015,’ said chairman Robert Robertson.

‘Although the holding was reduced several times as the share price rose, it was a painful reminder that distribution companies need good financial disciplines and that their quality of earnings can be low,’ he added.

The demise of Conviviality follows the high profile collapse of construction group Carillion (CLLN) in January, which managers James Henderson (pictured) and Laura Foll admitted was a ‘mistake’ after holding it in Lowland and the Law Debenture (LWDB) investment trust they also run. 


These negative experiences are not deterring the managers in making new investments they believe have been overlooked by the stock market. During the six-month period Foll and Henderson invested in pub company Greene King (GNK) which they consider remains a strong business in spite of tough trading conditions.

‘Part of the approach to running Lowland is to buy sound businesses when they fall out favour. There are opportunities to make this type of investment as many UK companies are being ignored by investors as a result of macro-economic fears,’ Robertson explained.

With this in mind the pair increased gearing, the borrowing investment trusts use to boost shareholder returns, from 6.3% to 14.2%. This reflected their renewed confidence after the market declines in February and March, having last year cut gearing citing high stock market valuations.

They also took profits on engineering group GKN (GKN), after Melrose (MROI) bid for the business.

Lowland shares trade more than 8% below NAV, which is wider than the average 4.6% discount in the AIC UK Equity Income sector. This reflects a deterioration in its relative performance in recent years. Over five years, its shares have delivered a total return of 54.8%, below the 57.2% sector average. However, over 10 years it has generated a 201.6% total shareholder return, ahead of the 186.7% sector average.

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