That is true but I cannot see many IT Boards being prepared to run down their Revenue Reserves in their entirety because then if dividends do not recover when the RR is exhausted either they fall off the cliff or they will need start to use Realised Capital Reserves. I think more likely the Board would take a view on the likely dividend income over the next few years and maybe supplement the revenue with some of the Revenue Reserves but still cut the dividend. They need to take a view on how long and how deep the cut to their income is likely to be.
Hi Dod,
I respectfully disagree with your view. I think IT boards will focus on maintaining and growing the divi at all costs. In the back of their minds will surely be the thought that if they cut prior to revenue reserves running dry, then subsequently revenues recover and they could have seen this through without a cut, then that would be an unsatisfactory outcome.
Don’t forget that part of the marketing for these trusts is their divi track record and I think they will try to maintain that, whatever it takes.
Let’s not forget that paying from capital reserves or from revenue reserves is only an accounting distinction and nothing more. They could choose to use their debt facilities to continue payouts once revenue reserves are exhausted so wouldn't have to actually sell shares to pay the divi per se.
Just my view. Let’s see how it pans out.
In response to one of the above links about the % cuts so far for each portfolio, those are interesting. I feel Temple Bar must be at risk of a divi reset - portfolio manager change (albeit possibly temporary), board tendering for a new investment manager, and one of the hardest hit portfolios from a revenue perspective. Doesn’t make for great reading.