Octopus Apollo VCT (LSE:OAP3) is a Venture Capital trust that pays tax-free dividends and targets an annual Dividend yield of 5%. For the year to 31 January 2026 it paid 2.6 pence per share, a yield of 5.1% on opening net asset value, and it has declared a further Interim Dividend of 1.2 pence for the half year to 31 July 2026. This article reviews how net asset value, reserves and portfolio income support the payout.

Company Overview

Octopus Apollo VCT aims to provide shareholders with tax-free dividends and long-term capital growth by investing in a diverse portfolio of predominantly unquoted companies, and it is managed by Octopus Investments. Net Assets were GBP 541.1 million at 31 January 2026 and GBP 573.3 million at 31 July 2026. The trust reopened its offer for subscription on 20 April 2026, and fundraising reached GBP 82 million by 1 April 2026.

Dividend Profile

Dividends of 2.6 pence per share were paid in the year, in two instalments of 1.3 pence, and a second interim dividend of 1.3 pence was paid on 19 June 2026. For the half year to 31 July 2026, the board declared 1.2 pence, payable on 23 December 2026 to shareholders on the register on 4 December. Since launch, shareholders have received cumulative dividends of 93.9 pence per share. The stock table shows a trailing dividend yield of 5.63%, trailing Diluted Earnings per Share of GBP 0.01 and a price-to-earnings ratio of 54.88. For a VCT, earnings per share fluctuate with portfolio valuations.

Dividend Sustainability Analysis

VCT dividends are paid from distributable reserves, which are supported by Investment income and realised gains, and the board reviews them against portfolio performance.

Payout Ratio and Earnings Coverage

Profit after tax was GBP 12.4 million for the year, compared with GBP 24.1 million, and total return per share was 2.4%. In the six months to 31 July 2026, profit after tax was GBP 6.0 million and total return was 1.0%. The board's policy is to maintain a regular dividend flow where possible and work toward a target annual yield of 5%, subject to available distributable reserves and overall portfolio performance.

Adjusted Cash Flow Coverage

During the year to January 2026, the trust used GBP 110.5 million of cash, including GBP 55.0 million in new and follow-on investments, GBP 21.4 million in dividends net of the Dividend reinvestment scheme, and funds for share buybacks. Sixteen percent of shareholders take dividends as new shares, which reduces the cash outflow.

Balance Sheet and Leverage

A VCT does not typically use borrowing, and the trust must keep at least 80% of its assets in qualifying investments to retain its status. The board has been advised that the trust complies with the conditions set by HM Revenue and Customs. Net asset value per share was 48.3p at 31 July 2026, compared with 49.1p at January 2026.

Liquidity

The trust holds cash and liquid investments alongside its unquoted holdings, which fund investments, Buybacks and dividends. Share buybacks are at the board's discretion and may be reviewed when necessary.

Revenue Stability and Profit Trends

Total value per share, which adds net asset value to cumulative dividends, was 142.2 pence at 31 July 2026, compared with 141.7 pence at January. Total return over five years was 32.7%. A performance fee of GBP 3.2 million was payable to Octopus for performance above a High-Water Mark of 140.5 pence.

Interest Rate and Commodity Exposure

Interest rates affect the valuations of unquoted companies and their financing costs, and the portfolio includes loans and structured investments with income components. Commodity exposure is indirect through portfolio companies.

Counterparty Concentration

The portfolio is diversified across many predominantly unquoted companies, so the dividend does not depend on any single holding. The board noted that increased VCT investment limits widen the range of companies the trust can support.

Management Commentary

The board said it was disappointed by the reduction in upfront income tax relief for new investments, which fell from 30% to 20% for investments made on or after 6 April 2026, but noted that higher investment limits broaden the range of companies the trust can support. Its policy remains a regular dividend flow, targeting a 5% yield.

Sector-Specific Dividend Risks

VCT dividends depend on portfolio valuations, realisations, investment income and tax rules. Changes in tax reliefs can influence fundraising and buybacks, and unquoted valuations may move between reporting dates.

Key Risks to Monitor

1. Net asset value per share fell slightly to 48.3p.

2. Dividends depend on distributable reserves and portfolio results.

3. Tax relief changes affect new fundraising.

4. Unquoted valuations can change.

5. Qualifying Investment levels must be maintained.

Bull Case

Supporters point to a consistent 5.1% yield, a diversified portfolio, a growing asset base and a policy aimed at regular tax-free distributions. Total value per share has continued to edge higher.

Bear Case

A measured view notes that net asset value per share has eased, profit was lower than in the prior year, and dividends rely on reserves and realisations.

Latest News and Developments

Half-yearly results were published on 9 October 2026, with an interim dividend of 1.2 pence declared. Final results for the year to January 2026 were released on 22 May 2026, and the offer for subscription was reopened in April.

Dividend Sustainability Rating

Rating: Moderately Sustainable

The rating reflects a diversified portfolio, a clear 5% yield target, a growing asset base and regular dividends. Reserves and valuation trends determine the pace of future payments.

Investor Takeaway

Octopus Apollo VCT offers tax-free dividends with a stated yield target and a broad portfolio. The payout is supported by reserves and portfolio performance, and total value per share has remained steady.