Abrdn Asian Income (AAIF ) has introduced a continuation vote and revamped its dividend to offer higher, but more volatile, payouts.

The portfolio of Asia Pacific equities will pay an annual dividend of 6.25% of its average net asset value (NAV), which is currently £379m.

One analyst said the move looks like an early response to American activist Saba Capital, which has already requisitioned seven other trusts languishing on large discounts.

Based on the NAV at the end of December, and the closing share price of 222p on 15 January, the enhanced dividend would equal a yield of 7.1%, which AAIF’s board hopes will make the shares ‘more attractive to a wider range of investors’ given a continued ‘appetite for yield’ in the current higher interest rate environment.

The first dividend payment to be made under the new policy will be in May 2025, for the quarter ended 31 March.

The board, chaired by Ian Cadby, is hoping to broaden the appeal of the shares and ‘over time, aiming to narrow the discount’, which currently sits at a wider 12% and has averaged 12.5% over the past year.

AAIF’s move to pay dividends based on the NAV means the dividends will be ‘subject to market and performance fluctuations’ and could be funded by selling investments at times. 

This is a change from the previous policy, when the trust had the objective of growing the dividend and had built a 16-year record of payout growth.

The trade-off for the higher yield will be the ‘potential for more variability, given the fluctuations in NAV will now be reflected in the dividend level’, said Deutsche Numis analyst Ewan Lovett-Turner.

He added that enhancing yields paid from capital has been a ‘popular approach’, though it is ‘slightly unusual to see it in an investment company that already has a specific income focus and a reasonable yield, albeit lower than 10% yield on Henderson Far East Income (HEFL )’.

Continuation vote introduced

A continuation vote has also been introduced to give shareholders the power to decide the fate of the company every three years. However, the first vote will not be tabled until the annual general meeting in 2028.

Shareholders will be asked by majority vote whether they wish the company to continue in its current form, and if the vote should fail, proposals will be brought forward on the future of the company.

There will be no change to the investment process or strategy, with managers Yoojeong Oh and Eric Chan, looking for ‘quality’ stocks at ‘sensible valuations’ that deliver both growth and income. Abrdn’s Asia Pacific equity head Flavia Cheong is also part of the investment team. 

Dividend yields and growth in Asia have outpaced those of Europe and the US and over 50% of total returns in Asian equities now come from dividends. Meanwhile, companies in the region are demonstrating stronger balance sheets and increasing free cashflow, meaning the ‘potential for rising payout ratios is compelling’, said the trust.

Cadby said Asia Pacific can ‘capitalise on these robust opportunities’ while the introduction of a continuation vote ‘underscores our dedication to transparency and shareholder empowerment’.

‘We are confident in the long-term resilience and growth of the asset class,’ he said.

The trust has not been able to shake its double-digit discount despite beating the MSCI All Companies Asia Pacific ex-Japan index over one, three, five and 10 years. Over the past year the NAV has increased 16.1%, including dividends reinvested, and shareholders are up 15.9% against 15.8% for the index.

Stifel analyst Will Crighton said the trust had tended to trade on a wider discount than Asian equity rivals.

‘These measures...look to be a reaction to Saba’s campaign against trusts languishing on large discounts – with AAIF being another which does and is perhaps not wanting to be the next target. We think this won’t be the last trust to react to recent events, with boards being kicked into action undoubtedly a positive for the sector,’ he said. 

‘We suspect the share price will react well to these measures and retain our ‘positive’ rating.’

In March last year, Abrdn agreed to cut its management charge on the fund and invest three months of fees into the trust’s shares.

The trust now pays manager Abrdn 0.75% a year of either its market capitalisation or NAV up to £300m, and 0.6% above that.