Despite the name, Finsbury Growth & Income Trust (LSE:FGT) hasn’t often been seen as a dividend stock. The FTSE 250 investment trust run by Nick Train focuses on ‘quality’ companies, including software/data analytics firms and heritage consumer brands.
These types of stocks do not usually carry big dividend yields. However, after years of underperformance, the trust is taking radical action to try to boost returns, including hiking the annual dividend by at least 50%.
Might this be an interesting income stock to consider, then? Let’s take a closer look.
Why’s this trust struggling?
For two decades, Train outperformed the wider market. But the last five years have been poor, resulting in the trust underperforming over a 10-year period (to 31 March).
How bad? Well, we’re talking about a net asset value (NAV) per share increase of 60% compared to almost 129% for the FTSE All-Share Index.
Stepping back, there are two developments that have really impacted performance. The first was soaring inflation and interest rates in 2022, which triggered the cost-of-living crisis.
Over the next three years, most holdings in the consumer staples and consumer discretionary sectors slumped. These included Diageo, Burberry, Heineken, Fevertree, and Remy Cointreau.
Clearly, the manager was very bullish on alcohol companies. But investors have soured on these stocks due to consumer spending pressure and more young people preferring gyms over pubs. Heineken and Remy Cointreau have since been sold.
The second, more recent thing is a historic sell-off in software/data companies perceived to be at risk from AI. Holdings impacted here include Experian, London Stock Exchange Group, RELX, Rightmove, Autotrader, and Sage.
This explains the massive divergence in performance illustrated above — almost like a wide-open whale’s mouth (with Finsbury as the lower jaw).
Taking action
The trust says it is “diametrically opposed” to the prevailing narrative that AI displaces these data/software businesses. As such, it intends to make use of gearing of up to £100m, from £29.2m in March, to take advantage of lower valuations.
We should respond to the value we see and buy more [of our core holdings]…This really should be an opportunity to utilise the special powers of an investment trust to create additional value for its shareholders.
Nick Train, May 2026
On top of this, the dividend will go from 20p to 30p. The current share price puts the dividend yield at an attractive 4% (from 2.6% previously).
Time to consider?
Clearly, there’s risk involved with borrowing more money to double down on stocks that might carry on underperforming. And because the portfolio is so concentrated (10 stocks making up 86%), this adds more risk.
That said, I think Finsbury can serve a role in a diversified portfolio. It isn’t one I want to load up on, but many of the core holdings look undervalued to me (particularly Sage, RELX, Experian, and Diageo).
The portfolio is trading at just 17 times earnings, the lowest multiple since 2013. If inflation stabilises over the next five years, and AI proves to be a support rather than a destroyer of these data businesses, the returns could be very attractive from here.
The enhanced dividend adds weight to the investment case, as does a 7.7% NAV discount. In my opinion, this is one to consider at 751p.
Should you invest £5,000 in Rolls Royce right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls Royce made the list?
Ben McPoland owns shares of Diageo and Sage.
