Is your New Year resolution to buy investment trusts? This two-part rundown of the big ones' paces may help.

Disentangling income and capital outturns from the 'total returns' promulgated by the industry, I have measured both aspects over ten years-- since the beginning of the previous bear market-- for 38 ITs. They represent the bulk of the sector's market value; the main omissions have shorter lives or are specialists, e.g. regional, in commercial property or mining.

Dividends are spotlit in the first part. Through the last decade of relative stagnancy in markets investors increasingly homed in on how ITs can furnish income; fund managers duly showed more concern for the revenue account, even when the trust's main purpose is to increase its asset value. Here is how streams flowed from 2000 onward, with latest financial years closing on September 30.

The table is ordered alphabetically. It is a descriptive exercise, not a Best Buy guide:

Trust (EPIC)                     Latest           Compound        No of    Cover   Ave rev. res.  Ave yield at
                                 year end      gwth pa (%)   real falls                 (months)         y/e %
 
Aberforth Smaller Cos (ASL)      Dec  2010            5.3            2     1.14              22           2.9
Alliance (ATST)                  Jan  2011           -0.4            6     1.13               9           2.5
Bankers (BNKR)+              *   Oct  2010            3.8            0     1.06              27           2.8
British Assets (BSET)            Sep  2011           -1.8            8     0.91              21           5.1
British Empire (BTEM)            Sep  2011           13.0            3     1.16              32           1.3
Brunner (BUT)                    Nov  2010            2.8            2     1.08              25           2.8
Caledonia (CLDN)             a   Mar  2011            1.3            1                       69           2.0
City of London ((CTY)@       *   Jun  2011            2.8            3     1.03              11           4.3
Dunedin Inc Gwth (DIG)@          Jan  2011            1.6            2     1.03              13           4.6
Edinburgh UK Tracker (EUK)       Dec  2010            1.2            5     0.99               7           3.2
Edinburgh (EDIN)@                Mar  2011            2.2            4     0.98              17           4.6
Finsbury Gwth & Inc (FGT)        Sep  2011            7.9            2     1.08              12           3.3
Foreign & Colonial (FCS)         Apr  2011           -0.1            5     1.01              32           1.5
F&C Cap and Inc (FCI)+           Sep  2011            2.3            4     1.06               9           3.5
F&C Global Smllr Cos (FRCL)      Dec  2010            5.2            1     1.08              29           2.1
Invesco Inc Gwth (IVI)@          Mar  2011            4.9            3     1.04              13           4.1
JPMorgan Emg Markets (JMGS)  b   Jun  2011                                                   18           0.5
JPMorgan Claverhouse (JCH)+  *   Dec  2010            5.6            1     1.07              18           3.2
Keystone (KIT)                   Sep  2011            1.0            4     1.02              15           4.0
Law Debenture (LWDB)             Dec  2010            3.6            4     1.09              23           3.6
Lowland (LWI)+                   Sep  2011            3.3            2     1.00              13           3.3
Mercantile (MRC)+                Jan  2011            6.3            2     0.99              17           3.4
Merchants (MRCH)@            *   Jan  2011            0.4            5     1.01              11           5.5
Monks (MNKS)                 c   Apr  2011            1.2            5     1.15              48           1.0
Murray Inc (MUT)@            *   Jun  2011            2.9            3     1.03              15           4.3
Murray Intnl (MYI)+              Dec  2010            4.4            3     0.98              24           3.8
Perpetual Inc & Gwth (PLI)+      Mar  2011            4.2            1     1.07              10           3.5
RIT Cap Partners (RCP)       d   Mar  2011           -0.9            8                       66           0.5
Schroder Inc Gwth (SCF)@         Aug  2011            1.9            4     1.00              10           4.3
Scottish American (SCAM)         Dec  2010            2.4            3     1.03              17           3.9
Scottish Mortgage (SMT)          Mar  2011            4.0            0     1.08              30           2.1
Scottish (SCIN)                  Oct  2010            1.1            0     1.15              32           2.3
Shires Inc (SHRS)                Mar  2011           -7.1            8     1.01              15           8.7
Standard Lf Equity Inc (SLET)    Sep  2011            1.9            4     1.06              10           3.9
Temple Bar (TMPL)@           *   Dec  2010            1.0            4     1.03              16           4.3
Templeton Emg Markets (TEM)      Mar  2011            9.9            3     1.29              39           1.2
Troy Inc & Gwth (TIGT)           Sep  2011          -11.6            7     1.04               8           6.5
Witan (WTAN)                     Dec  2010            0.6            4     1.05              20           2.4
.
AVERAGES (38)                                         2.4            3     1.06              22           3.3
+Average (Basket of Seven)                            4.3            2     1.03              17           3.4
@Average (Basket of Eight)                            2.2            4     1.02              13           4.5
 
Global Gwth (14)                                      2.7            3     1.09              33           2.2
UK Gwth and Inc (15)                                  1.2            4     1.03              12           4.6
UK Gwth (4)                                           3.5            3     1.02              14           3.5
 
FAILURES (see text)                                     6            5        5              10
 
*   AIC dividend hero-- see text
 
a   Data for eight years since IT status obtained (from Apr 2003)
b   Dividends paid only to maintain IT status
c   Including 'exceptional' recent payouts
d   Dividend cover meaningless- see text

Big ITs have broadly done all right for investors who need income or welcome it in passing. A spell in mid-decade of handsome dividend hikes from trusts' predominantly British shareholdings was bookended by two spasms of cuts and passes, though their severity has been exaggerated; meanwhile overseas positions produced an underlying groundswell in revenue as 'emerging' economies and companies blossomed. Since 2010 PLCs' earnings distributions rebounded sharply and substantially under the artificial sunlight of quantitative easing (HYSS #66351, #66421).

Together these currents enabled an average compound annual growth rate (cagr) in the trusts' payouts of 2.4%, deflated by the Retail Price Index and excluding one-off special distributions. The trusts' yield on purchase averaged 3.3%, a touch above the London market's 3.1%. It may not sound great, but it meant that between 2000 and 2011 the purchasing power generated by an untouched investment of £1,000 would have risen by more than a quarter, from £33 to £42 a year.

But the variances are vast. Most would think of British Empire (BTEM) as a capital-conserver and grower which in spite of its name is primarily an overseas player outside our domains. Yet it runs away with the prize for the speediest rise in income: 13% a year. Behind that phenomenon lies a step change in policy from a token payout to a certain cultivation of revenue, though it may not endure:

http://boards.fool.co.uk/british-empire-finals-12406086.aspx...

Even more incongruously, Templeton Emerging Markets, the 20-year-old flagship of its sector, has partaken of the tendency for new capitalist territories to develop companies which begin to distribute their prosperity. TEM still carries a derisory yield of little more than 1%, but the rules about having to pass on most of its receipts have resulted in its dividend increasing by almost one-tenth year upon year.

The most populous sector to make dividends a prime purpose, UK Growth & Income, has achieved an annual compound growth rate of only 1.2%, half as fast as for all 38 trusts. G&Is drew slow earnings growth from the 'maturity' and defensiveness of the British blue chips-- often operating under political constraints in home markets-- which are their bread and butter. But above all the G&Is which pushed too hard for immediate revenue return and came to grief have let the sector down: spectacularly, Aberdeen Asset Management's Shires Income and Troy (then Glasgow Income), which needed drastic dividend 'rebasings', but also British Assets, Edinburgh and Merchants, which less gravely hampered their worth and dividend growth potential by becoming over-anxious to give a high running yield.

Such policy missteps neither show up quickly nor are corrected fast. The history of the investment trust movement is one punctuated by belated realisations of wrong directions followed by laborious turnarounds, with the odd gobbling-up by a piranha of a pension fund to scare the rest into action. Happily most of the 38 stayed on an even keel throughout.

The 'basket of eight' I selected from the Growth & Income group was cherrypicked to avoid the most hamfisted managers: hence it would have produced a cagr in income almost twice as fast as the sector, while selling on the same starting yield of c. 4.5%. Yes, it was a hindsight job, and the B8 is not a portfolio I care for any more. The Basket of Seven is the one for boosting spending power over a prolonged period: it outdid the UK and Global Growth sectors' leading lights with a dividend cagr of 4.3% pa, on an average yield of 3.4% which matches the British growthers and comfortably tops the foreign explorers.

By design many growth trusts do not fuss about income. Negative-compounders include RIT Capital Partners, which does not care about it at all; Alliance, which has bungled this like other aspects of its operation; and the daddy of them all, Foreign & Colonial. Caledonia Investments is officially an IT, but the policies and capital structure brought forward from its trading-company days make it absurd to evaluate it as an income-payer (cf 3i). Monks and Witan are big, traditionally fully-invested ITs with a global mandate whose payouts are not their attraction (though what else is?). Law Debenture has done far better for divis, possessing trading offshoots in financial services which, unlike Alliance's, make money.

Then there is the vexed question of the Association of Investment Companies' Dividend Heroes. They brandish 25-45 year records of raising dividends uninterruptedly in money terms but not necessarily of protecting purchasing power, since the increments may be too small to keep abreast of the RPI. The heroes are starred so the reader can pit hype against deflated reality. Some do merit the accolade.

To sketch the reliability of these rising distributions over the decade, the table shows how many times out of ten between 2000 and 2011 a financial year's total failed to equal or improve on the year before's, after inflation. Typically a trust missed the mark three or four times, which in the light of early-Noughties and recent ructions is not too bumpy compared with an index-linked government bond: a little conservation during the fat years, one's private reserve, would have seen one through the lean. Three trusts boast unblemished records of defying the RPI: the ultra-conservative Bankers, Scottish and Scottish Mortgage. Several stumbled only once or twice. The most peccant were muckers-up of their revenue accounts: Shires, Alliance et al.

On the whole trusts picked their way nimbly through the bull and bear swings, using revenue reserves to keep the payout profile regular. The column for cover shows that 38 trusts took in 6% more than they shelled out: it does not sound like a big margin, but it sufficed to keep reserves topped up, trending higher than at the end of the previous downturn, c. 2004, despite their depletion by the crisis's threats to income. Real cuts during the pressure point of 2009-10 have duly been light, once those reserves had been skimmed rather than rifled to save the divi-- arguably skimmmed too timidly. Growth trusts have maintained stronger cover, doubtless because they feel less pressurised to keep the payout always bubbly. The only ITs not to cover their dividends during the decade which surprise slightly are Murray International and Mercantile.

Running cover has to be weighed against the reserve, whose strength is here assessed relative to the payout's latest annual cost. Aberforth Smaller Companies, British Empire, F&C Global Smaller Companies, Scottish Mortgage and Templeton combine fast growth, high cover and deep pockets reserve-wise; pity the market knows how to price such virtues, with all yielding well below the 3% historic 'going rate' for all shares.

Growth trusts tend to run much larger reserves than income-minded ones as well as higher cover, but the G&Is' average of a year's worth is reassuring against an average starting yield of 4.6%: that is half as high again as a random bunch of equities drawn from the All-Share Index would have provided. Only four trusts held less than a year's dividend cost in reserve; this at a point when investments have lifted their payouts above inflation for some time, nudging IT payouts upward after the lag following receipt.

The 'failures' line of the table accuses funds which could not grow real income between the beginning and end of these eleven years (six out of 38); could not lift such payouts, year on year, more than half the time since 2000 (five of them); could not cover said payouts (five again); or ran a revenue reserve of a year or less (ten). It becomes clear from comparison of average starting yields in 2000-11 with ratios for dividend 'doughtiness' that the optimal mix, if seeking security plus buoyancy in income, would not necessarily have come from issues which returned the most straight away. However, to buy a load of 1-2% yields in hopes of turbocharged growth within five or ten years is swinging too far the other way. Such is the compromise behind the B7 as a hassle-free income generator for two decades or more ahead: go for a modestly above-normal yield, but set that against the historic speed of climb and robustness of cover and reserves backing.

Down among the 1% yields, much depends on how trusts targeting global growth in what may soon cease to be 'emerging' markets handle the world economy's reorientation east and south. If growth-minded operators stay in Chinese, Indian and Brazilian companies as these become more distributive, and play down spotting fledgling winners and baggers, the likes of Templeton and JPMorgan Emerging Markets may mutate into high(ish)-yielding plays, beating the new wave of intentionally foreign-income-seeking portfolios to the punch. If EM and GG trusts stick to their knitting and recycle funds into 'frontier' bourses, dividends will still be incidental-- petty cash.

That assumes there are as many opportunities for new capitalist colonisation and conversion as when Mark Mobius kicked off TEM in 1989. Marketing realities have to be acknowledged as well. The great British public's thirst for a stronger income flow than cash or gilts now give, with more stability than has hitherto been associated with non-US and non-European shares, lies athwart, for instance, Monks's and Foreign & Colonial's drab dividend histories and needlessly big revenue reserves. Will these veterans shift course, or continue to pursue churned capital gains from old-economy stocks' share prices after years of elusiveness? Will they stooge around waiting for cyclical business as usual to come back... so they can buy low and sell high in the old-fashioned way, with a touch on or off the gearing lever to give performance a fillip?

As we shall see in the second instalment, such methods have not brought punters' biggest rewards in the big trusts' own shares.
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This post's data can be read alongside my enumeration of fifty ITs' responses to the boom in dividends of 2006-08 and the squeeze afterwards:

http://boards.fool.co.uk/it-dividends-the-global-picture-124...

See also October's review of more than 200 trusts' performance on differing timespans and measures:

http://boards.fool.co.uk/investment-trusts-autumn-review-124...