More than 130 years later, this pragmatic trust still offers something new

Law Debenture boasts a unique structure with two valuable sources of outperformance.

12 June 2025

Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest for the past six decades.

The UK equity market has been a happy hunting ground for income-seeking investors, and it continues to offer a yield premium to other developed equity markets. However, more recent events, particularly across competing income-producing asset classes, have shifted the emphasis for equity income investors towards total returns, dividend growth and the benefits of a pragmatic approach to stock selection.

In the context of an evolving landscape of UK equity income strategies, few names stand out as consistently as Law Debenture. This venerable institution, with almost 136 years of history, combines an actively managed UK equity investment portfolio with the robust growth of its wholly-owned independent professional services (IPS) business, which is comprised of three divisions – pensions, corporate trust and corporate services. This combination creates a unique structure that supports the trust’s history of consistent outperformance.

The investment portfolio is managed by the experienced Janus Henderson duo of James Henderson and Laura Foll, and benefits from a contrarian and value-focused style. The investment approach followed by Henderson and Foll is unconstrained by the equity income mandate, can invest across the market cap spectrum and targets companies trading at reasonable valuations with conservative balance sheets and experienced management teams.

One of the standout features of Law Debenture is the IPS business, which accounts for around 19pc of its net asset value (Nav) and has funded approximately 30pc of its dividends over the past decade. IPS has delivered mid-to-high single-digit growth and around two thirds of IPS revenues are recurring.

Law Debenture has consistently delivered outperformance in the UK equity income sector. Over the five years to the end of April 2025, it reported a Nav total return of 108pc and a share price total return of 120pc, far beating the FTSE All Share Index’s 68pc. Over the past decade, the trust has outperformed the FTSE by 49 percentage points. This outperformance reflects its ability to navigate market volatility and deliver value to its shareholders through active portfolio management, supported by the steady growth and income generation of IPS.

In Law Debenture’s accounts, the IPS business has a valuation multiple of 10.5x by enterprise value over earnings before interest, tax, depreciation and amortisation (EV/Ebitda), which remained consistent year on year. The total valuation of the IPS business has increased by £116m (148pc) since the first valuation at end-December 2015. This valuation underscores the growth potential and stability of the trust’s business model.

The investment portfolio’s largest sector exposures as of April 2025 were financials (30pc) and industrials (23pc). Top holdings included names such as HSBC, Barclays, Shell, Rolls-Royce and Flutter Entertainment, but the portfolio is multi-cap and it is currently benefitting from mid and small-cap exposure in UK companies.

At the end of April 2025, Law Debenture’s net gearing was around 13.6pc. In the context of global uncertainty – whether policy-driven or macroeconomic – leading to heightened equity market volatility, the investment portfolio has benefited from access to a diverse list of companies and its valuation discipline. The investment portfolio’s average valuation (historic price-to-earnings ratio) of 11.6x compares favourably with the UK market of around 12.6x and the US market’s roughly 24x earnings.

Law Debenture has delivered an 8pc annual dividend growth over the past 10 years and has increased or maintained its dividend for 46 consecutive years. The board proposed a total dividend of 33.5p for FY24, up 4.7pc from 32p in 2023, resulting in a yield of approximately 3.5pc on the current share price. The diversified income stream provided by IPS to the trust provides a cushion against market volatility and supports its dividend distributions. This blended approach makes the vehicle an attractive option for income-focused investors.

The trust currently trades on a small premium to Nav, a positive reflection of the demand for the strategy and the returns generated for shareholders. Over the past five years, its share price has traded at an average premium of 0.4pc to Nav, supporting steady growth of the strategy over time. Law Debenture’s ongoing charges figure of 0.51pc is one of the lowest fees in its sector and one of the lowest fees across the entire investment trust universe.

In our view, Law Debenture’s unique structure supports its consistent outperformance. The ability to invest in an unconstrained manner and hold low or zero dividend yield shares, backed by the IPS business’s growth and income contribution, has made the company one of the best-performing trusts in the UK equity income sector.

With its strong record, diversified portfolio, robust IPS business and reliable dividend policy, Law Debenture presents a compelling case for investors seeking stability, income and growth potential. In addition, for those looking to diversify their investment portfolio and access the valuation opportunity in the UK equity market, the trust offers a compelling combination of actively managed stock picking, attractive yield and strong dividend growth.

Questor says: buy
Ticker: LWDB
Share price: £9.74

If Mr. Market ever offers you a yield of around 5% would be of interest to pair trade it with a higher yielder.