SAINTS annual letter: income again and again

As with any investment, your or your clients’ capital is at risk. Any income is not guaranteed and can fall as well as rise.

How to summarise SAINTS’ performance in 2024? In a word: ‘mixed’.

On the positive side, growth in earnings across the portfolio was strong. Its backbone is equities, where dividend growth was robust. Income from the property, infrastructure and bond portfolios was also solid. Together, these investments drove growth in the company’s earnings per share, lifting it 7.5 per cent above the prior year. This strong growth underpinned another year of inflation-beating dividend increases.

We’re proud of the fact that since 1938, when the Company last reduced its dividend, and indeed since 2003, when the board appointed Baillie Gifford as managers, SAINTS’ portfolio has delivered dividend growth to shareholders that, on average, has beaten UK inflation by 3 per cent per year.

With the consumer price index (CPI) ending 2024 at a rate of 2.5 per cent, and SAINTS dividend growing by 5.5 per cent, the company once again delivered real growth in income. Meanwhile the net asset value (NAV) of the company rose to a new high.

On the negative side, NAV growth lagged the benchmark, the FTSE All-World, by some distance. Worse, the share price did not follow the NAV, as the discount widened over the course of 2024, finishing the year at around 13 per cent.

Equity portfolio 

Each year we analyse the financial results of every SAINTS’ holding. We clean up these numbers for any distortions (such as one-off gains in profit that should not be considered part of a company’s ongoing earnings) and stack these results against the numbers from prior years. This gives us an overarching picture of how each company in the portfolio is performing, and where the strengths and weaknesses lie.

Our ‘north star’, or goal, is 10 per cent compounding: we’re looking for companies that can deliver 10 per cent annual growth in earnings and dividends and keep doing so for long periods.

Inevitably we’ll get a few wrong, but if we can construct a portfolio where, on average, the investments are growing 10 per cent every year, this should over time deliver excellent results to shareholders.

For context, equity markets worldwide have achieved around 5 per cent earnings growth over the past three decades, while inflation in the UK has averaged around 3 per cent. A portfolio that delivers 10 per cent should handily beat both.  

The chart below shows the dividend growth of every company in the equity portfolio. We have taken each company’s latest announced dividend rate, and combined these with the figures from prior years to calculate a five-year compound growth rate. We prefer to look at the five-year rate because individual years taken on their own, 2020 for example, can misrepresent the underlying picture. A five-year view provides a much clearer picture of the long-term health of the investments.

Average annual dividend growth per share

Over five years to end Dec 2024

The main conclusion from this chart is that SAINTS’ equity portfolio is in good fettle. The current holdings have, on average, delivered 10 per cent annual dividend growth over the past five years.

Bear in mind this is an annual figure. Meaning that after five years of 10 per cent growth, a shareholder is receiving a dividend that is more than 60 per cent higher. This point is often lost in comparison with other sources of income, such as bonds. For an income that grows, it’s hard to beat equities.

There is clearly a range of results around the average. In the strongest cases, some of SAINTS investments have delivered dividend growth well north of 10 per cent. Examples include video game publisher Netease (32 per cent average dividend growth per year) and pharmaceutical maker Novo Nordisk (17 per cent growth per year). In weaker cases, we have seen dividend growth from some holdings nearer to the mid-single-digits than 10 per cent, such as Coca-Cola (4 per cent) and Nestle (4 per cent).

It’s noticeable that several of the fastest growing dividends in the portfolio have come from our investments in Chinese companies: such as Anta Sports, Midea, Man Wah, and Netease. Whereas at the lower end of the chart we find businesses that manufacture consumer staples: firms like Procter & Gamble, Diageo and Nestle.

The slower growing dividends are always a prompt for us to consider whether we can achieve faster growth from other companies. But to an extent the range in dividend growth reflects a conscious trade-off. Alongside growth, we look for rock-solid dividend resilience. SAINTS has not cut its dividend for many decades, and that resilience starts with each underlying investment.

Companies at the lower end of the chart typically have ultra-resilient dividends. For example, we are highly confident that Coca-Cola will continue raising its dividend every year, even if the growth rate is only modestly above inflation. By comparison, the fastest dividend growers in the portfolio, such as Netease, tend to have more dividend volatility from year to year.

Moving on

We divested from Sonic Healthcare, the lab testing company, after several years of pedestrian dividend growth – just 2 per cent in 2024. We concluded that, although the resilience of the dividend remained high, there were structural headwinds in its markets (notably a lack of pricing power) that made an acceleration in its earnings and dividends unlikely. At Dolby Laboratories, another divestment, it was a similar story: several years of lacklustre earnings growth most likely caused by structural headwinds, particularly in pricing. 

At Kering, the luxury goods company, SAINTS has enjoyed several years of strong earnings and dividend growth since we invested in 2016. But lately the company seems to have gone off-track, losing key talent and pursuing a new strategy which, based on our experience, has a low probability of working: moving away from what is authentic to its brands while at the same time pushing up prices. Typically, this results in old customers leaving faster than new ones arrive. We suspect there will be a number of painful years ahead and most likely a reduction in the dividend.

At Hargreaves Lansdown, the investment platform, our hand was forced by a bid from a private equity buyer backed by other shareholders. At pharmaceutical maker GlaxoSmithKline, another divestment in 2024, the decision was solely ours. Our investment case had been predicated on better commercial management of the company’s portfolio, and a rebuilt pipeline under visionary new leaders appointed to the research and development team. The first part of the investment case worked, and the shares rose during our ownership, but the second part failed to come to fruition and we decided to move on.

New faces 

We made three new purchases during the year. The first was Epiroc, a leader in drilling equipment used in mines and construction. This company is unusually well-managed: it comes from the same stable of firms that produced our successful investment in Atlas Copco, the Swedish engineering powerhouse. At Epiroc we see many of the same qualities, and we expect many years of solid profit and dividend growth.

This should be underpinned by the company’s constant innovation, combined with several supportive trends we see in its end-markets. These include increasing use of automated drilling for safety reasons and increasing use of software to deliver better analysis of how to drill. The company aims to pay a resilient dividend across cycles. 

CME Group was another attractive new investment during the year. This company dominates the exchange of derivatives in US markets: most notably interest rate futures, but also a long list of energy, metal and agricultural commodities encompassing everything from oil to copper to corn. It does not take positions on these commodities, rather it operates the pre-eminent marketplace in the US where buyers can find sellers, through its matching platform, Globex.

In the years ahead we expect growth in CME’s revenues to be driven by ever-rising trading volumes, as its customers, such as banks, try to manage ever-more complex financial risks. It is constantly innovating new products, and there is potential for it to grow its customer bases internationally. Margins and cash flow are strong and paid out in an attractive level of dividends. Last year the shares were weak, as some investors worried about a new competitor launching in the US. But our analysis suggests this new player is unlikely to succeed, and we took the opportunity to invest.

Paychex was a third new investment. This is a payroll processing company serving thousands of small businesses in the US. Every time employees get paid, companies need to navigate a labyrinth of state and federal rules to ensure the correct deductions, taxes, and so on are made. This is the core of Paychex software, saving employers dozens of hours for the cost of a few dollars a month. An attraction is the additional products that can be sold on the back of this software: such as health insurance, recruitment tools, and other tasks connected to managing people. We foresee Paychex selling more products to more businesses in the years ahead, growing its earnings and its dividend, which have a tremendous track record of compounding.

Summing up 

We look forward with great optimism to 2025. We will stay true to SAINTS’ objective of delivering a growing and resilient income that beats inflation, while also aiming to grow capital value. Our analysis of the investment portfolio suggests it’s well placed for this task. We continue to find exciting new ideas around the world, the likes of Epiroc, CME and Paychex: names that make SAINTS’ prospects ever stronger. We remain resolutely aligned with shareholders, investing alongside them as owners of SAINTS shares.  

Read the full SAINTS Annual Report →

Past performance is not a guide to future returns.

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The value of the trust's shares and any income from them can fall as well as rise. Past performance is not a guide to future returns.

This communication was produced and approved in July 2025 and has not been updated subsequently. It represents views held at the time of recording and may not reflect current thinking.

This communication should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This communication contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.

The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised or regulated by the Financial Conduct Authority. The value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.

Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA).

The specific risks associated with the Trust include:

• SAINTS invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.
• The Trust invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.
• Market values for securities which have become difficult to trade may not be readily available and there can be no assurance that any value assigned to such securities will accurately reflect the price the Trust might receive upon their sale.
• The Trust can make use of derivatives which may impact on its performance.
• Share prices may either be below (at a discount) or above (at a premium) the net asset value (NAV). The Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.

Further details of the risks associated with investing in the Trust, including a Key Information Document and how charges are applied, can be found in the Trust specific pages at www.bailliegifford.com, or by calling Baillie Gifford on 0800 917 2113.

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