Aberdeen Income Trust (LSE:AEI) increased its Dividend for a 25th consecutive year in the year to 30 September 2025, paying 23.00 pence per share against Revenue Earnings of 23.43 pence. The board expects at least 23.1 pence for the current year. This article looks at how earnings and reserves support the payout.

Company Overview

The trust invests in UK listed shares with the aim of generating income and growing capital, using an index-agnostic approach across the Market Capitalisation range. On 17 March 2026 it completed a combination with another UK income trust, creating an enlarged company with net Assets of more than GBP 325 million. The financial year ends on 30 September, and results for the year to 30 September 2026 are expected in December 2026.

Dividend Profile

The dividend is paid quarterly. Payments in the last twelve months included 5.9 pence in January 2026 and 5.7 pence in March and June 2026. The board expects the total dividend for the year to 30 September 2026 to be at least 23.1 pence per share. The stock table shows a trailing Dividend Yield of 5.08%, trailing Diluted Earnings per Share of GBP 0.97 and a price-to-earnings ratio of 4.70, a low figure that reflects the inclusion of Capital gains in trust earnings.

Dividend Sustainability Analysis

The board encourages the manager to fund the dividend from portfolio income and holds reserves to support it when needed. The enlarged trust has both revenue reserves and realised capital reserves that can be used.

Payout Ratio and Earnings Coverage

Revenue return per share was 23.43 pence in the year to September 2025, compared with a dividend of 23.00 pence, giving cover of about 102%. Net revenue earnings rose 2.1% to GBP 11.24 million. In the half year to 31 March 2026, revenue return per share rose 10.4% to 11.23 pence, and total dividends for the period were 11.40 pence.

Adjusted Cash Flow Coverage

Revenue income in the half year rose 14.6% to GBP 6.2 million, compared with GBP 5.4 million. The figure was helped by the Waiver of GBP 0.3 million of management fees attributable to revenue, which Aberdeen agreed as part of the Merger terms. Growth in portfolio income reflects dividend increases from holdings and the enlarged asset base.

Balance Sheet and Leverage

At 30 September 2025, revenue reserves were 15.68 pence per share and distributable capital reserves were 171.25 pence per share. The trust uses a modest level of gearing within its policy. Its discount to net asset value was 4.6% at 31 March 2026.

Liquidity

The portfolio holds listed UK shares across large, mid-sized and smaller companies, which can be traded in the market. The enlarged size after the combination can improve trading Liquidity in the trust's own shares.

Revenue Stability and Profit Trends

Net asset value total return was 21.8% for the year to September 2025 and share price total return was 25.7%, ahead of the FTSE All-Share index return of 16.2%. Revenue return per share has risen in each of the last two reporting periods, and the dividend has increased annually for 25 years.

Interest Rate and Commodity Exposure

UK income shares include banks, insurers, energy and Mining companies, which respond to interest rates and commodity prices. The diversified portfolio is positioned across sectors to balance these influences.

Counterparty Concentration

The portfolio is diversified across many UK companies and sectors, with position limits in line with the Investment policy. The manager's index-agnostic approach spreads exposure beyond the largest index constituents.

Management Commentary

The board said the results reflect the benefits of a flexible investment mandate and that it remains committed to sustaining and growing its dividend growth history. In the circular on the combination, the board said there should be no reduction in dividend income for shareholders of either trust and that the trust has revenue and realised capital reserves available to support payments if required.

Sector-Specific Dividend Risks

Income trusts depend on dividends from portfolio companies, which can change with earnings and corporate decisions. Revenue reserves smooth timing differences, and capital reserves provide further flexibility, but the dividend remains linked to portfolio income over time.

Key Risks to Monitor

1. Portfolio company dividends determine revenue return.

2. Integration of the enlarged portfolio is ongoing.

3. The fee waiver is part of the merger terms and is time limited.

4. Reserves provide support, but the aim is for earnings to cover the payout.

5. UK market valuations influence net asset value.

Bull Case

Supporters point to 25 consecutive years of dividend growth, revenue return above the dividend, rising half-year income, sizeable revenue and capital reserves, a stated expectation of at least 23.1 pence and a larger vehicle after the combination.

Bear Case

A measured view recognises that the merger fee waiver contributes to revenue and that cover was close to the dividend, so continued income growth matters. The shares can also be affected by UK market sentiment.

Latest News and Developments

The half-year report on 28 May 2026 confirmed the higher revenue return and a second Interim Dividend of 5.7 pence, payable on 26 June 2026. The board continues to expect a total dividend of at least 23.1 pence for the year to 30 September 2026, and the annual results are due in December 2026.

Dividend Sustainability Rating

Rating: Sustainable

The rating reflects revenue cover above 100%, rising portfolio income, sizeable reserves and a long pattern of annual increases.

Investor Takeaway

Aberdeen Income Trust offers a quarterly income stream with a long history of increases. Earnings cover the dividend, reserves provide additional support, and the enlarged size after the combination adds scale.