Why isn't Saga in your Best Buys? And how do investment trusts pay dividends?

19 July 2018

Question by Carl

Is there a reason you don’t list Saga in your Best Buys? Additionally, I have purchased a few investment trust shares but can’t work out how the dividends are paid. Scottish Mortgage is an example. I wasn't given an option to choose how to receive the dividends. It would be useful if you could provide some clarity on how investment trusts pay their dividends.

Answered by Holly Mackay

Why isn't Saga in our Best Buys?

Put simply, we don’t review Saga because we've not had much demand.

They are powered by Equiniti who look after many of the country’s largest share schemes. Which suggests to us that they are probably stronger on core essential functions including security, but less strong than many providers when it comes to apps, bells and whistles, and good content which covers both funds and shares.

At 0.35% for the basic admin fee for funds, and £12 a pop to trade shares, Saga fees are in line with the market averages. So I’m sure they are fine, but neither do I see anything which would differentiate them when it comes to ISAs, or make them stand out.

How do investment trusts pay dividends?

As you know, investment trusts are collections of shares which are bought and managed by a company on your behalf. This company’s business is the management of these investments – and you buy a share in this holding company.

Scottish Mortgage has little to do with Scotland and nothing to do with mortgages, but is a consistently well regarded investment trust, and I have it in my own portfolio. It’s returned 200% over 5 years, and currently pays out dividends twice a year in July and December. The dividends are pretty small at about 0.6% at the moment. The last one paid was 1.68p per share.

You made me paranoid, so I checked my account and the last dividend hit on 2nd July.

If you have not received this, you may well have set some option up to automatically re-invest dividends. But whilst this can be a good idea for funds, it’s not always a good plan for shares, because you will typically be charged a trading fee to buy shares, so buying small parcels can be a bit pointless on an ongoing basis.

In the Saga ISA, automatic dividend reinvestment purchases are charged at a rate of 1% (minimum £1, maximum £7.50). So if you only get a dividend of say £30 and you’re paying £1 to trade, you automatically lose 3.3% on reinvesting. So the first 3.3% of gains are eaten away. Not the end of the world but something to be aware of.

I suggest you phone or contact whoever your account or ISA is with, and ask them where the dividends have gone – check your income history or cash statement first to be sure nothing landed in July. And check the transaction history to see if you automatically bought more in July – if so, that’s where it has gone!

Answered by

Holly Mackay

Founder and CEO of Boring Money

I’ve worked in investment markets for over 20 years. I started out at Merrill Lynch Investment Management and worked at a few big names before setting up my first business in 2008.