• 18 July 2025
• QuotedData
• James Carthew

Inflation is creeping back up again. The annual rate of inflation as measured by the Consumer Price Index (CPI) is now 3.6% or, to look at it another way, prices are almost 28% higher than they were five years ago. If we were using the old RPI measure, those figures would be 4.4% and 38%. According to the Office for National Statistics (ONS), average UK total weekly earnings have grown a little ahead of CPI and a little behind RPI over the past five years; no doubt many of us are feeling a bit poorer.

If you are an investor reliant on income from your portfolio, you might be even more concerned.

The table shows investment companies with an income objective that have grown their dividends faster than CPI inflation over the past five years. There are not as many of them as I would like, but they are a diverse bunch.

Unfortunately, only three of 18 UK equity income trusts have grown their dividends faster than CPI over the past five years. Those three are JPMorgan Claverhouse, Law Debenture, and Chelverton UK Dividend. On the whole, trusts did do a good job of at least maintaining their dividends through the COVID period. The ability to dip into revenue reserves worked to their advantage. However, boards have been keen to ensure that dividends are covered by revenue earnings once again and this has held back dividend growth across the sector.

Law Debenture has the advantage of owning a growing professional services business, which helps supplement its income and gives the manager the freedom to invest in some lower yielding companies with faster than average dividend growth.

Chelverton UK Dividend has a bias to smaller companies, which makes its portfolio a bit different to most of the competition. JPMorgan Claverhouse has a more traditional large cap UK equity income portfolio. It has made inflation-matching dividend increases part of its objective, but it is not seeing corresponding growth in revenue per share and is dipping into revenue reserves to achieve this.

The dividend growth numbers for global trusts are pretty good. Top of the pile are two trusts – Invesco Global Equity Income and JPMorgan Global Growth and Income – that pay out a percentage of NAV rather than trying to cover dividends from net revenue. STS Global Growth and Income and Scottish American also managed to outpace inflation.

In Asia, Aberdeen Asian Income Fund has managed to deliver 9.3% per annum dividend growth and the equivalent figure for Invesco Asia Dragon is 17.4%. However, in both cases these figures reflect a shift of approach from paying dividends covered by revenue to topping up dividends from capital reserves.

This shift to paying enhanced dividends also accounts for the presence of many other trusts in the table. The policy has been particularly popular within the JPMorgan stable of investment companies, for example. It also means that a much wider range of investment remits can now be accessed through dividend paying vehicles, including private equity and biotech.

Of the renewable energy infrastructure trusts, NextEnergy Solar Fund, SDCL Energy Efficiency Income, and Greencoat UK Wind have managed to generate decent dividend growth. Unfortunately, that has not helped narrow their discounts, which remain unjustifiably wide. For NextEnergy and Greencoat it helps that a good chunk of their revenue comes in the form of index-linked subsidies. That inflation linkage is to RPI. Given that, investors might reasonably wonder why other similar trusts do not feature in this table.

Another sector that often draws attention to its predictable inflation-linked revenues is infrastructure. Here, however, only 3i Infrastructure makes the grade and it is an exception to this rule. Its policy of taking on exposure to assets with some demand or market risk has paid off.

However, utility and infrastructure assets are a good source of income and the two trusts that invest predominantly in listed companies in this sector – Ecofin Global Utilities & Infrastructure and Utilico Emerging Markets both feature on the list.

Lastly, the rising interest rates that created headwinds to dividend growth in many sectors over the past five years have been a boon for debt funds. TwentyFour Income Fund, CVC Income & Growth sterling shares, and M&G Credit Income have produced some of the highest dividend increases and have done so from growing revenue.