More than three quarters of trusts (77%) raised payouts during the April to December 2020 pandemic months, according to Link Group’s Dividend Monitor.

It found that investment trusts dished out an extra £87m in dividends in 2020, equivalent to a 4.2% annual increase. During the crisis months of April to December, more than three quarters of trusts investing in equities raised payouts or held them steady.

This feat was especially impressive given that the recent Link Group Dividend Monitor showed that UK dividends fell 38% during the year, on an underlying basis, while Janus Henderson’s Global Dividend Index showed global payouts were down 12.2%.

Collectively, investment trusts distributed a record £1.88bn in 2020 and have increased what they pay to investors by 123% in the past 10 years.

Link says the key to their success was the hefty reserves the sector had laid down during the good years. Just as the pandemic struck, Link’s research shows that trusts had held back £1.6bn that could be used to support dividend payouts during the crisis.

Link estimates that by the end of March 2021, trusts will have used £700m of these reserves as the anniversary of global lockdowns is reached. Global equity trusts had revenue reserves worth two years’ of dividends before the pandemic, while UK trusts had a year’s worth.

Over the full year, the main global equity sector accounted for a third of the dividend growth from all investment trusts. They raised dividends by 9.3% despite global dividends falling 12.2%. Global trusts held large revenue reserves, worth two years’ of payouts so they had a healthy cushion.

Trusts investing in UK equities, easily the largest paying sector, raised payouts by 3.8%, in stark contrast to the 38% underlying decline in UK dividends. They contributed three tenths of the overall increase in investment trust dividends for the full year.

Susan Ring, CEO of Link Group UK, said: “The more internationally diversified trusts are, the less they have been exposed to the steepest dividend cuts. Global trusts have big reserves and have seen a relatively small reduction in the dividends paid to them by the companies they hold. Continued dividend growth is likely this year from this group.

“Asia-Pacific and Japanese regional trusts are focused on parts of the world where the economic impact of the pandemic has been less severe so these too should hold relatively firm. Elsewhere, European trusts cut early so we do not see significant further downside from them. Trusts focused on UK equities are more vulnerable. They still enjoy the cushion of long-accumulated reserves, but prudence suggests some cuts are likely as dividends from UK companies are going to take some time to regain previous highs.”