Standing out as rates fall and UK equity sentiment brightens: Aberdeen Equity Income

On 17/03/2026 Aberdeen Equity Income (AEI) completed the process of combining with Shires Income (SHRS), with AEI as the continuing vehicle. The result is an enlarged trust with net assets in excess of £325m. The combination modestly broadens the investment toolkit, adding preference shares and investment-grade fixed income securities, alongside exposure to selective overseas equities in developed markets. Whilst this may diversify income sources and slightly alter the risk-return profile, the core UK equity income approach remains unchanged, with managers remaining focussed on bottom-up stock selection, valuation discipline and dividend sustainability, building a Portfolio of high-quality companies where share prices understate long-term potential.

Income progression remains a defining feature too. For the year ended 30/09/2025, AEI delivered its 25th consecutive annual Dividend increase to 23.0p per share, fully covered by earnings. The board intends to continue this record, guiding dividends of at least 23.1p for FY2026. The current yield of 6.0% remains attractive and the progressive dividend policy will continue post combination.

Cost efficiency is also set to improve. At 30/09/2025, AEI’s ongoing Charges figure stands at 0.84%, but the enlarged trust’s OCF will be capped at 0.78%. As part of the scheme, Aberdeen agreed to fund implementation costs (net of the cash option discount), limiting NAV dilution for rollover shareholders.

Performance has also strengthened meaningfully over the past year to 23/03/2026, with AEI delivering NAV and share price total returns of 26.3% and 25.3%, ahead of the 17.5% return from the FTSE All-Share. Alongside this, investor demand has been strong. The trust has issued c. 6.5% new shares over the past 12 months, a notable outlier in a sector where issuance has been limited. At the time of writing, AEI currently trades at a small Discountof 1.9%, compared with its five-year average of 3.4%.

The merger with SHRS is, in our view, a constructive development for AEI. It brings greater scale, lower, more competitive costs and a potentially broader toolkit, without altering the high-quality, valuation-driven UK equity income philosophy that has delivered strong income and capital growth under Thomas’ tenure. The addition of Iain Pyle’s expertise in preference shares, selected fixed income and overseas equities should modestly diversify income streams and temper volatility at the margin, but the strategy remains fundamentally the same disciplined approach.

To us, one of AEI’s clearest differentiators remains its income durability. A 25-year record of consecutive dividend growth, with a further rise guided for 2026, reflects a diversified portfolio of cash-generative businesses and prudent reserve management across multiple cycles. In an environment of easing cash rates and moderating inflation, a 5%+ yield backed by a progressive policy remains attractive.

The combination also strengthens AEI’s position in what we view as an increasingly compelling UK equity backdrop. The UK market remains attractively valued relative to global peers, with robust corporate balance sheets, significant overseas earnings providing resilience and ongoing M&A activity highlighting latent value. Against this backdrop, AEI’s larger scale, and bias towards attractively valued businesses, including meaningful smaller company exposure, leaves it well placed should market leadership broaden, though smaller companies remain sensitive to economic pressures and investor sentiment.

AEI has traded at a modest premium for most of the last 12 months, reflecting improved performance and renewed demand, although it fell to a discount at the start of March 2026, when the Iran war began. Whilst its current level reduces the valuation cushion seen in 2023, continued outperformance, a broader recovery in UK sentiment, particularly towards smaller companies, and the added benefits of the combination through added scale and cost efficiency, could see its discount narrow, or return to a premium. On balance, we believe AEI is well positioned for long-term income-focussed investors wanting differentiated exposure to the UK’s potential.