AEI enters a new phase through a combination with SHRS strengthening an already proven UK equity income strategy.

Overview

On 17/03/2026 Aberdeen Equity Income (AEI) completed the process of combining with Shires Income (SHRS), with AEI as the continuing vehicle. The result is an enlarged trust with net assets in excess of £325m. The combination modestly broadens the investment toolkit, adding preference shares and investment-grade fixed income securities, alongside exposure to selective overseas equities in developed markets. Whilst this may diversify income sources and slightly alter the risk-return profile, the core UK equity income approach remains unchanged, with managers remaining focussed on bottom-up stock selection, valuation discipline and dividend sustainability, building a Portfolio of high-quality companies where share prices understate long-term potential.

Income progression remains a defining feature too. For the year ended 30/09/2025, AEI delivered its 25th consecutive annual Dividend increase to 23.0p per share, fully covered by earnings. The board intends to continue this record, guiding dividends of at least 23.1p for FY2026. The current yield of 6.0% remains attractive and the progressive dividend policy will continue post combination.

Cost efficiency is also set to improve. At 30/09/2025, AEI’s ongoing Charges figure stands at 0.84%, but the enlarged trust’s OCF will be capped at 0.78%. As part of the scheme, Aberdeen agreed to fund implementation costs (net of the cash option discount), limiting NAV dilution for rollover shareholders.

Performance has also strengthened meaningfully over the past year to 23/03/2026, with AEI delivering NAV and share price total returns of 26.3% and 25.3%, ahead of the 17.5% return from the FTSE All-Share. Alongside this, investor demand has been strong. The trust has issued c. 6.5% new shares over the past 12 months, a notable outlier in a sector where issuance has been limited. At the time of writing, AEI currently trades at a small Discount of 1.9%, compared with its five-year average of 3.4%.

Analyst’s View

The merger with SHRS is, in our view, a constructive development for AEI. It brings greater scale, lower, more competitive costs and a potentially broader toolkit, without altering the high-quality, valuation-driven UK equity income philosophy that has delivered strong income and capital growth under Thomas’ tenure. The addition of Iain Pyle’s expertise in preference shares, selected fixed income and overseas equities should modestly diversify income streams and temper volatility at the margin, but the strategy remains fundamentally the same disciplined approach.

To us, one of AEI’s clearest differentiators remains its income durability. A 25-year record of consecutive dividend growth, with a further rise guided for 2026, reflects a diversified portfolio of cash-generative businesses and prudent reserve management across multiple cycles. In an environment of easing cash rates and moderating inflation, a 5%+ yield backed by a progressive policy remains attractive.

The combination also strengthens AEI’s position in what we view as an increasingly compelling UK equity backdrop. The UK market remains attractively valued relative to global peers, with robust corporate balance sheets, significant overseas earnings providing resilience and ongoing M&A activity highlighting latent value. Against this backdrop, AEI’s larger scale, and bias towards attractively valued businesses, including meaningful smaller company exposure, leaves it well placed should market leadership broaden, though smaller companies remain sensitive to economic pressures and investor sentiment.

AEI has traded at a modest premium for most of the last 12 months, reflecting improved performance and renewed demand, although it fell to a discount at the start of March 2026, when the Iran war began. Whilst its current level reduces the valuation cushion seen in 2023, continued outperformance, a broader recovery in UK sentiment, particularly towards smaller companies, and the added benefits of the combination through added scale and cost efficiency, could see its discount narrow, or return to a premium. On balance, we believe AEI is well positioned for long-term income-focussed investors wanting differentiated exposure to the UK’s potential.

Bull

  • Offers one of the sector’s highest yields, supported by strong reserves
  • Differentiated portfolio including a bias to UK mid- and small-caps
  • Combination with SHRS has seen assets grow to over £325m, increasing its scale and reducing costs

Bear

  • AEI now trades on a modest discount, meaning there is limited scope for a performance boost from a narrowing discount
  • Use of gearing magnifies potential gains and the yield, but also the potential losses
  • Value-tilted portfolio has seen the trust struggle when growth style outperforms

Dividend

The combination with SHRS has not altered AEI’s core income objective. The board has made clear that the enlarged company will continue to pursue a progressive dividend policy, with the intention of extending its long-standing record of annual increases. Whilst the investment toolkit may broaden modestly, the emphasis on delivering a high and growing income stream remains central to the trust’s identity. Importantly, the board has also stated that it does not expect a reduction in dividend income for shareholders of either AEI or SHRS as a result of the transaction.

That commitment is underpinned by a strong track record. For the year ended 30/09/2025, net revenue earnings rose 2.1% to £11.24m, supporting a 1.6% increase in earnings per share to 23.43p. This in turn supported a fourth interim dividend of 5.9p, bringing the total annual dividend to 23.0p. The dividend was fully covered by earnings and marked the 25th consecutive year of dividend growth, maintaining the trust’s status as an AIC Dividend Hero. The ten-year history of dividends and earnings per share, shown below, highlights consistent coverage, with the exception of the COVID-affected years (FY20–21), when revenue reserves were used prudently to maintain distributions. Looking ahead, the board expects dividends of no less than 23.1p for the 2026 financial year, reinforcing its intention to extend the trust’s dividend growth record.

DPS AND RPS

Source: Aberdeen

Whilst the board continues to emphasise that dividends should be funded primarily from portfolio earnings AEI retains revenue reserves of 15.68p per share, equivalent to approximately 0.7× last year’s 23.0p dividend, to support distributions in more challenging periods. In addition, distributable capital reserves of 171.25p offer further flexibility, should they ever be required to support distributions further and shareholders recently approved an application to the courts to redesignate the share premium account as a distributable reserve, providing further flexibility to the board.

At the portfolio level, both Thomas and Iain have demonstrated, within their respective trusts, that income generation and capital growth can be achieved in tandem. In our view, this provides a positive indication of continuity under AEI, post combination. Their valuation-aware approach often leads them towards companies offering attractive yields alongside scope for operational or strategic improvement. In several cases, this has resulted in dividend yield compression as market perceptions improved. Recent examples include Imperial Brands and M&G, where strong cash generation and clearer capital allocation frameworks supported both income delivery and share price appreciation.

Sirens are mythical creatures known for their enchanting voices that lured sailors to their doom.