Monday, 25 March 2013

Dunedin Income Growth IT (DIG)

As I have mentioned in previous articles, last year I converted my sipp to income drawdown and several shares were sold to provide the funds for the 25% tax-free lump sum. I decided the remaining individual shares were too few to be adequately diversified so decided to dispose of the remainder and reinvest the proceeds into more investment trusts. As I need a reasonable level of income to cover the annual drawdown, I decided to include a couple more investment trusts from the UK growth & income sector.

Dunedin was one which caught my attention due to the share price of 200p at the time being at a 6% discount to its net asset value (NAV) - in addition it had just moved to quarterly dividend payments and the forecast for the coming year was 10.5p making a yield of over 5%. The other attraction was the lowish ongoing charges of around 0.6%. latest monthly factsheet

They have just issued their report for the 12 months to 31st January - here’s a link via Investegate.

The headline is that NAV per share on a total return basis has increased 18.8% - ahead of its benchmark the FTSE all-share index which increased by 16.3%. Over the past three years (to date), the sp total return is up a respectable 54%.

Looking a little deeper into the report, I am a little concerned to see a dip in the revenue reserves of     -7.8% to £19.9m, however, this is still more than covering the full dividend paid for the past year. Total income declined by 1.6% for a variety of reasons - no special from Vodafone, currency exchange and less benefits from writing options - and the board are recommending a below inflation rise in the dividend for the year of only 0.9% to 10.75p - having said that, this will still provide a dividend yield of 4.2% based on the current share price of 255p.

The CAGR over the past 10 years has fallen to just 4% - one of the lowest in my portfolio - so I think the manager has quite a bit of work still remaining to get this figure back above the 5% mark (Murray International is 9.5% by way of comparison).

The manager is moving the overall portfolio more towards growth which will mean lower absolute income in future years but potentially faster growth of revenues. Although it is in the UK growth & income sector, I like the 20% contribution to income from overseas holdings.

The manager, Jeremy Whitely, seems happy that the portfolio is in good shape and says he is not prepared to compromise on quality in the search for value. Portfolio turnover is minimal and the transaction costs are only 0.05% of NAV (these costs for the average fund are over 1%).

I am content to continue holding for the time being but will be looking for some progress on income growth above inflation combined with a boost to reserves at this point next year.

As ever DYOR.


  1. "the transaction costs are only 0.05% of NAV (these costs for the average fund are over 1%)": which is why I have rarely invested in funds.

  2. dearieme, thanks for leaving a comment and yes, I agree with you on funds - maybe the situation will start to improve with the introduction of RDR and banning of commission?