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Over the past few years, some investors have made good profits by holding stocks Scottish Mortgage Investment Trust (LSE: SMT) shares have fallen 45 per cent over the past 12 months, while the value has risen 90 per cent over the five-year time frame. Not only this, but the trust charges a profit. However, Scotland’s mortgage interest rate is less than half a percent. So if I invest £100 in shares now, I can’t even expect a 50p dividend next year.
Why – and will it influence my decision as to whether an Edinburgh-based investment trust might make a good addition to my portfolio?
A long history of growth
The first interesting thing to note about Scottish Mortgage when it comes to shares is that in some ways its track record sets it apart positively from other stocks.
The company has paid dividends every year without a cut for decades. The last reduction was back in the 1930s. Very few other companies have such an uninterrupted dividend record. This is not a guarantee of the future, but it does show that the business has a long-term focus on distributing profits to shareholders.
On top of that, Faith has been growing its division fairly recently. Last year, for example, the annual dividend rose from 3.42p per share to 3.59p per share. This is roughly a 5% increase, which I find attractive in percentage terms.
Calculating the Scottish mortgage interest rate
But if the dividend is growing, why is the yield so low?
This is because dividends are calculated by looking at the dividend as a percentage of the share price. While the five-year rise in share prices I mentioned above may have boosted share prices for some investors, the Scottish mortgage dividend has had the effect of pushing up profits.
In fact, if I had bought the shares a year ago when they were more expensive, my yield would have been even lower than if I had bought them today.
My step
So, does the low yield mean I won’t consider adding Scottish loans to my portfolio?
My answer is no, based on my personal investment objectives. The trust’s long-term distribution record impresses me. But from an income perspective, I feel like I can find other high-quality companies that will give me a higher yield in the hope that they will continue to fund me in the future.
However, I view Scottish Loans as an addition to my portfolio for its growth prospects beyond its income potential. I gladly accept dividends, even if the yield is low. But the main reason I’m considering buying Scottish Loans shares is because of the growth opportunities I think the company’s asset managers can identify for the trust. With growth being my objective when I buy shares, dividends play little or no role when I decide to add to my portfolio.
Despite the risks of a further slide in technology valuations hurting the share price, I think Scottish Mortgage’s diversified portfolio can give me exposure to long-term growth opportunities. in order to I am considering buying the shares for my portfolio regardless of the yield.