As a finance and investment expert, I often analyze income-generating assets, and one that consistently stands out is the Bankers Investment Trust (BNKR.L). This UK-based global equity trust has a long history of delivering steady dividends, making it a compelling choice for income-focused investors. In this article, I’ll break down how the trust manages its dividend policy, its historical performance, and the mathematical models that help assess its sustainability.
Table of Contents
Understanding Bankers Investment Trust
Bankers Investment Trust, managed by Janus Henderson, is one of the oldest investment trusts in the UK, established in 1888. It follows a global multi-cap equity strategy, investing in companies across North America, Europe, and Asia. The trust aims to provide long-term capital growth while maintaining a progressive dividend policy.
Dividend Policy and Historical Performance
The trust has increased its dividend for 56 consecutive years, a testament to its disciplined approach. Unlike many funds that cut dividends during market downturns, Bankers has maintained payouts even in tough economic conditions.
Here’s a snapshot of its recent dividend history:
| Year | Dividend Per Share (pence) | Dividend Growth (%) |
|---|---|---|
| 2019 | 17.4 | 4.8 |
| 2020 | 18.1 | 4.0 |
| 2021 | 18.7 | 3.3 |
| 2022 | 19.3 | 3.2 |
| 2023 | 19.9 | 3.1 |
The growth rate has slowed slightly, but the consistency is impressive.
How the Trust Funds Its Dividend
Bankers Investment Trust uses a combination of dividend income from holdings and capital reserves to sustain payouts. Unlike some income funds that rely solely on portfolio dividends, Bankers can dip into revenue reserves—a cushion built from past years’ surplus income.
Dividend Cover: A Key Metric
A critical measure of dividend sustainability is dividend cover, calculated as:
\text{Dividend Cover} = \frac{\text{Net Revenue}}{\text{Dividend Payout}}A ratio above 1.0 means earnings fully cover the dividend. Bankers has maintained a cover ratio between 0.9 and 1.2 in recent years, indicating slight reliance on reserves.
Total Return vs. Dividend Yield
While the dividend yield (currently ~2.5%) may seem modest, the trust’s total return—combining capital appreciation and dividends—has been strong. Over the past decade, Bankers delivered an annualized return of ~9.5%, outperforming many global equity benchmarks.
Comparing Bankers to US Dividend Funds
US investors often favor domestic dividend funds like Vanguard High Dividend Yield ETF (VYM) or Schwab US Dividend Equity ETF (SCHD). How does Bankers stack up?
| Metric | Bankers Investment Trust | VYM | SCHD |
|---|---|---|---|
| Dividend Yield | 2.5% | 3.1% | 3.5% |
| 10-Yr CAGR | 9.5% | 8.2% | 11.0% |
| Dividend Growth | 3.1% (5-Yr Avg) | 6.2% | 9.0% |
While US funds offer higher yields and faster dividend growth, Bankers provides geographic diversification and a longer track record of consistency.
Mathematical Models for Dividend Sustainability
To assess whether Bankers can maintain its dividend, I use the Gordon Growth Model (GGM), which estimates the present value of future dividends:
P = \frac{D_0 (1 + g)}{r - g}Where:
- P = Current share price
- D_0 = Current dividend
- g = Expected dividend growth rate
- r = Required rate of return
Assuming:
- D_0 = 19.9p
- g = 3\% (historical average)
- r = 8\% (expected return)
The fair value estimate would be:
P = \frac{19.9 \times (1 + 0.03)}{0.08 - 0.03} = 410pAt the current share price (~400p), the model suggests the dividend is fairly valued.
Risks to Consider
- Currency Risk – Since Bankers holds global assets, a strong GBP could reduce dividend income when converted.
- Market Volatility – A prolonged downturn could force the trust to dip deeper into reserves.
- Interest Rate Sensitivity – Rising rates may make bonds more attractive relative to equities.
Final Thoughts
Bankers Investment Trust offers a balanced approach to dividend investing—steady payouts, global diversification, and a resilient strategy. While US-focused funds may provide higher yields, Bankers stands out for its longevity and consistency. For investors seeking reliable income with moderate growth, this trust deserves consideration.
