The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). Aiming to continue to provide a high and growing level of income, he is adjusting the trust's portfolio in the wake of dividend cuts sparked by the negative economic effects of COVID-19. If there is an income shortfall in this financial year, MRCH is well positioned to maintain its dividend, with revenue reserves of more than 1x the last annual payment. It has not been an easy period for value managers over the last decade as growth stocks have led the charge; however, Gergel has outperformed the UK market over this period in both NAV and share price terms. The board reduced MRCH's gearing in late January 2020, which was opportune timing ahead of the recent significant stock market weakness.
The UK market has experienced a significant correction in response to the coronavirus pandemic. While earnings estimate revisions are in a state of flux and many companies are cutting or suspending their dividends, there are still some high-quality businesses trading on reasonable valuations available for investors with a longer-term perspective.
- Attractive 7.6% dividend yield is higher than the UK market’s and the majority of its peers’. The annual distribution has increased for 38 consecutive years.
- Diversified portfolio of attractively valued UK equities positioned to benefit from an economic recovery.
- Long-term record of outperformance versus the UK stock market.
- Lower interest costs due to refinancing of and reduction in debt.
MRCH’s current 1.6% discount to cum-income NAV compares to a range of a 1.0% average premium to a 3.4% average discount over the last one, three, five and 10 years. The board actively issues shares when they are trading at a premium. MRCH has a progressive dividend policy and the annual distribution has increased for the last 38 consecutive years. The trust currently offers a 7.6% dividend yield.