This top UK passive income stock has raised its dividend for 60 years in a row!

Which is better for long-term passive income? A sustainable annual dividend, raised year after year after year? Or an eyeball-grabbing big yield that’s likely to be here today, gone tomorrow?

For me, its the first option every time. And it’s hard to think of a better candidate than City of London Investment Trust (LSE: CTY). Its forecast yield of a relatively modest 3.9% is far from the beefiest on the FTSE 250. But how much might dividends have helped generate for investors over those 60 years? Let’s find out…

Einstein would have liked it

Albert Einstein is often credited with calling compound interest the eighth wonder of the world. There’s no evidence to back that up, sadly. But I’m sure the great thinker would have approved of City of London’s track record.

Over the past 20 years, the investment trust has seen its share price rise at a compound annual growth rate of around 3.9% — duplicating the anticipated dividend.

If that growth rate continues, and the dividend yield also sticks at 3.9%. So £1,000 invested today could grow to a stunning £90,600 over the next 60 years! How’s that for passive income?

Achievable target?

Now, I know we keep banging on about investing for the long term here at The Twelfth Magpie. But I recognise planning for 60 years ahead is going to be a bit beyond most of the investors I hope will be reading this. And, of course, the past 60 years doesn’t in any way guarantee the next 60.

But I think it does help show the real, very-long-term potential from UK shares. Even from stocks with modest dividends and unexciting annual growth. And speaking of those 60 years of dividend rises at results time.

This continues City of London’s unique leadership in delivering the longest record of consecutive annual dividend increases in the investment trust sector. The board is determined to maintain this leadership position over the years ahead.

Chairman Sir Laurie Magnus (15 September)

Not without risk

I reckon defensive investing in tough economic conditions has helped a lot towards the share price rise of the past couple of years. And with the dividend yield down a bit as a result, I could see some near-term investors moving their cash elsewhere.

City of London provides diversification across a range of top-quality UK stocks. And I rate diversification as an essential part of any strategy. But any stock market dip could still mean a bit of a down spell for this stock. The past strong year for the FTSE 250 could also raise the odds of a pullback.

Also, around 20% of the trust’s portfolio is invested in North American stocks. And the chairman did talk about the uncertainty of AI valuations.

So what’s the bottom line?

I might be a little cautious over the short-term outlook for City of London. But I still rate it a strong candidate for a long-term passive income portfolio. Along with another I have my eye on…

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Alan Oscroft owns shares in City of London Investment Trust.