Which LICs are prepared for leaner times?

Some listed investment companies have been squirrelling away profits to pay dividends in a winter of lesser returns.

Summary: Listed investment companies can retain earnings to pay out dividends, compared to managed funds which typically pay out all income generated for the year. This allows LIC managers to set aside funds to continue paying dividends in difficult years. Consistent dividend payers such as AFI, BKI and ARG have increased dividends steadily over the years, while more active managers like CDM are able to pay higher dividends but this will vary.

Key take-out: Profit reserves are made up of both realised and unrealised capital gains and the latter can evaporate quickly. Keep an eye on profit reserves but also look at a LIC’s performance.

Key beneficiaries: General investors. Category: LICs.

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