Savings

Increased dividend payments recently announced by several major UK companies will benefit investors this year and over the long term, according to Aberdeen Asset Managers.

Barclays (LSE: BARC.L - news) announced a 10% rise in its dividend last week, while BP and National Grid (LSE: NG.L - news) have also raised their dividends recently, by 35% and 15% respectively. Aberdeen said such moves would be a welcome relief for those with investment trust holdings, considering the uncertainty surrounding UK and global economies at the moment. UK equity income investment trusts tend to invest in large-cap companies, which are often more stable than smaller firms.

Chou Chong, manager of Aberdeens Dunedin Income Growth Investment Trust, said: Having underperformed in 2007, traditional high yielding shares are likely to do better this year due to their lower volatility and defensive tendencies.

In 2008, equity income investors may not see quite the same level of dividend growth that theyve enjoyed for the last couple of years. But our regular meetings with management and knowledge of companies based on cumulative research continue to support a good long-term outlook for UK companies and dividend growth.

In addition, investment trusts can hold back some of the income from dividends, choosing to pay it out to investors in subsequent years when their holdings may only be paying smaller dividends. This means investment trust shareholders benefit from reduced volatility in the level of income received each year.

William Hemmings, head of investment companies at Aberdeen, explained: A compelling characteristic of investment trusts is their ability to build revenue reserves which can mean reduced income volatility, despite the ups and downs of capital performance in any particular year.