I am pleased to present the Annual Report for Dunedin Income Growth Investment Trust for the year ended 31 January 2024 and to report that our Company’s net asset value (“NAV”) total return outperformed both the benchmark and peers for the year.

• NAV total return of 6.7%, outperforming the FTSE All-Share Index return of 1.9%, resulting in the Company ranking top of the AIC UK Equity Income sector by NAV total return for the year.
• Five year NAV total return of 43.8%, with the Company ranking 3rd out of 20 in the AIC UK Equity Income sector by NAV total return.
• Record revenue return for the year of 13.54p per share, an increase of 4.0%.
• Total dividend for the year of 13.75p per share, an increase of 5.0% which compares to the CPI increase of 4.0%.

Performance

After the rapid tightening of monetary policy and dramatic geopolitical and domestic political events of 2022, the reporting period this year provided a more stable investment environment and one that provided fewer headwinds to the Company’s investment strategy. As a result, the portfolio’s total return exceeded that of the FTSE All-Share Index and, in the process, delivered a positive absolute return. Whilst performance of the portfolio, which is highly active and differentiated from our benchmark, should be considered over longer time periods, this year’s performance represents a welcome return to outperformance after two years in which the Investment Manager’s strategic focus on high quality companies with an emphasis on dividend growth and sustainability had proven something of a challenge in a market that had favoured more value orientated investment styles and seen strong returns from commodity related sectors.

Over the longer term, the Company has delivered a NAV total return of 43.8% over five years compared to the benchmark return of 30.4%, and over that period ranks 3rd out of 20 in the AIC UK Equity Income sector by NAV total return.

The Board recognises the importance of the dividend return to shareholders and we are pleased to report that the portfolio has seen continued revenue growth, with revenue earnings per share reaching another record high, at the upper end of our original expectations for the year.

The NAV total return of the Company remains ahead of the benchmark and peers over both the short and longer term. The main frustration in the period has been the widening of the discount at which the Company’s shares are trading to NAV. Particularly as this now represents a wider discount than the average of the UK Equity Income sector, despite stronger performance. Alongside that, the portfolio remains highly differentiated to its peer group, offering a highly active, relatively concentrated strategy, with a sustainability overlay that remains unique within the sector and rare within the wider investment trust universe.

We remain committed to the sustainability ambitions of the Company and believe it is the right approach when investing for the long term and to deliver sustainable and growing dividends. We expect that investors will return their focus towards this segment of the market as environmental and social risks rise and asset owners turn their attention to the impact of their holdings. For the Investment Manager, this is about both avoiding risks and taking advantage of opportunities such as investing behind the powerful demand trends stemming from the climate transition.

Comments on SDR

The Board notes the FCA’s recent regulation on sustainability disclosures, including product labelling and presentation of sustainable credentials by UK funds, including investment trusts; the Sustainable Disclosure Regime (‘SDR”). The Board is considering the implications of this for the Company, which is one of the few UK investment trusts to adopt a sustainable investment approach. It is worth noting that the decision to formally adopt the sustainable investment approach in 2021 was very much an evolution of our investment approach which focuses on quality companies capable of delivering superior total returns with growing income, rather than a response to heightened levels of investor interest. The Board will continue to ensure that our approach and process are described in terms that meet all facets of UK regulation and we are confident that our successful, differentiated investment approach will not have to change in any material respect as a result of the introduction of this regulation.

Gearing

The Board believes that the sensible use of modest financial gearing, whilst amplifying market movements in the short term, will enhance returns of both capital and income to shareholders over the long term. We also recognise the benefit that having a reasonable proportion of long-term fixed rate funding provides to managing the Revenue Account, through greater certainty over financing costs. The Company currently employs two sources of gearing; the £30 million loan notes maturing in 2045, and a £30 million multi-currency revolving credit facility that expires in July 2024. A Sterling equivalent of £13.3 million of the revolving credit facility was drawn down at the year end. The loan notes bear a fixed interest rate of 3.99% and the multi-currency facility is at a variable rate, and thus the costs of borrowing have increased compared to the prior year.

Discount

The share price total return for the year of -1.6% was significantly lower than the NAV total return, reflecting a move in the discount from 2.9% at the end of last year to 10.7% as at 31 January 2024 (on a cum-income basis with borrowings stated at fair value). In response to this widening during the year, 2.1 million shares were bought back at an average price of £2.69, well below the NAV.

The Board believes a consistent rating of the Company’s shares close to the underlying asset value is of significant benefit to shareholders. As well as a strong focus on execution of the investment strategy, the Board continues to support efforts to attract new investors and retain existing ones through clear messaging and regular engagement with investors. We are confident that the company’s robust performance, attractive dividend profile and differentiated positioning are a good basis to support a strong rating for the Company’s shares over the medium term. We will continue to use the buyback facility to provide liquidity and address the imbalances between buyers and sellers. Continued good performance and a renewal of broadly based interest in UK equity markets will, we believe, place the Company’s shares back on a rating that reflects its performance. As in previous years, we will seek shareholders’ permission at the forthcoming AGM to buy back shares and issue new shares.

Board Succession

It is the Company’s stated policy that Directors should stand down after nine years on the Board. Jasper Judd, who is Chairman of the Audit Committee, and I, both joined the Board in February 2016. Accordingly, we will stand down from the Board at the conclusion of the Company’s AGM in 2025. The Board will recruit a further Director during the course of this financial year who, it is intended, will take over from Jasper as Chairman of the Audit Committee. The number of Directors will therefore increase to six for a short period to allow for an orderly handover and smooth succession. Howard Williams, who has been a Director since April 2018, will succeed me as Chair of the Company and it is the Board’s intention to recruit a fifth Director in 2025 to bring the number of Directors back to five.

Outlook

The Company has a clear focus on generating both total return and dividend growth while formally incorporating sustainability into its mandate. The Board believes that this is the correct strategy to deliver capital outperformance and dividend growth over the longer term. Having weathered a volatile economic and political environment over the past few years, we believe that there are now reasons for cautious optimism for the Company’s relative performance to continue to prove robust.

Inflationary pressures have eased substantially, paving the way for the Bank of England to potentially cut interest rates at some point in 2024. The global economy, while far from booming, is continuing to prove relatively robust, despite substantial tightening in monetary policy and very subdued Chinese output. Sustainability is coming back onto investors’ radars as environmental, social and governance increasingly impact investment cases. Meanwhile, the market valuations of UK and European equities are extremely attractive on an absolute and relative basis. This all potentially points to an environment that can both support earnings delivery and an expansion in equity multiples which could drive attractive total returns to investors. While declining interest rates may also help to narrow the discount at which your Company’s shares trade.

We also believe that the Investment Manager’s focus on sustainable companies means that the income growth of the Company should be driven more by structural rather than cyclical growth and that gives the Investment Manager a higher degree of confidence on the likely path of income generation. This should help to underpin earnings delivery even in an environment where economic growth remains modest, while the balance of the portfolio means it is well set to navigate volatile markets and demonstrate resilience in a range of different market environments.

There are a number of reasons to be watchful. Elections at home and abroad will generate plenty of speculation and debate and, while inflationary pressures have eased, they are still at elevated levels compared to central bank targets. Likewise, geopolitical tensions continue to persist across the Middle East, Russia continues with its invasion of Ukraine and China’s relationship with Taiwan remains tense. As a result, we think it is important to maintain a relatively well-balanced portfolio and the Investment Manager’s focus on investing in companies with pricing power, strong balance sheets and with greater exposure to structural, rather than cyclical, growth should offer greater resilience in both capital and income generation. The Company’s track record over the past five years with this strategy remains highly creditable.

The Board is confident that the Company is wellpositioned to continue to deliver relative total return outperformance over the medium and long term. This, combined with the return to growing the dividend ahead of inflation, should enable the Company’s shares to trade closer to NAV.

Performance

Cumulative performance (%)

Discrete performance (%)

Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value. Source: abrdn Investments Limited, Lipper and Morningstar. Past performance is not a guide to future results.

Risk factors

Risk factors you should consider before investing:

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• The Company may charge expenses to capital which may erode the capital value of the investment.
• Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• Certain trusts may seek to invest in higher yielding securities such as bonds, which are subject to credit risk, market price risk and interest rate risk. Unlike income from a single bond, the level of income from an investment trust is not fixed and may fluctuate.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London, EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK