Interactive Investor

High-yielding trusts with a five-year record of dividend growth

28th July 2022 10:37

Kyle Caldwell from interactive investor

Research reveals investment trusts with at least a five-year record of raising dividends, and a market-beating yield in excess of 4%.

For investors on the lookout for income ideas, investment trusts are well worth considering.

Due to their structure, which allows 15% of income generated each year to be held in a so-called revenue reserve, investment trusts are more consistent income-payers than funds. During lean periods, investment trusts can dip into their reserves to top-up income shortfalls. Open-ended funds do not have this luxury, and are required to distribute all the income generated by the investments held each year.

The Covid-19 pandemic was a case in point. In 2020, 85% of income-paying investment trusts (with yields above 1%) increased or held dividends steady in 2020. In contrast, only 23% of open-ended funds increased their dividends.

As well as prizing consistency, investors (particularly new investors) will also be eyeing what level of dividend yield is on offer.

For those looking for 4%-plus returns (more than the 3.7% being offered by the FTSE 100 index), research by the Association of Investment Companies (AIC) has found 32 trusts yielding above that figure. In addition, each of the 32 trusts have a five-year track record of increasing dividends.

The highest-yielding is CQS New City High Yield (LSE:NCYF), which invests in high-yield bonds and yields 8.68%.

Henderson Far East Income (LSE:HFEL), offering income of 8.48%, is the highest-yielding trust investing in shares.

Seven of the high-yielding investment companies are AIC “dividend heroes”, which means they have consistently increased their dividend for at least 20 years in a row. The seven trusts are: abrdn Equity Income Trust (LSE:AEI)Value and Indexed Property Income (LSE:VIP)Merchants Trust (LSE:MRCH)City of London (LSE:CTY)JPMorgan Claverhouse (LSE:JCH)Schroder Income Growth (LSE:SCF), and Murray Income Trust (LSE:MUT).

The UK equity income sector is well represented, accounting for eight trusts in the table below. Other sectors of note with a couple of trusts in the table are global equity income, Asia-Pacific equity income, and renewable energy infrastructure.

As outlined in the table below, some trusts boost the amount of dividends they pay through capital. Bear in mind though, that with these enhanced dividends it could led to growth being sacrificed - particularly in a bear market. 

With all higher-yielding trusts, investors need to be careful that they are not taking too much jam today at the expense of jam tomorrow. Lower-yielding trusts may offer higher dividend growth over the long term. 

4% yielders that have increased dividends annually for at least five years

Company

AIC sector

Yield

(%)

Five-year dividend growth per annum (%)

Consecutive years of dividend increases**

CQS New City High Yield (LSE:NCYF)

Debt – Loans & Bonds

8.68

0.41

14

Henderson Far East Income (LSE:HFEL)

Asia Pacific Equity Income

8.48

3.19

15

Apax Global Alpha (LSE:APAX)*

Private Equity

7.24

8.82

-

GCP Asset Backed Income (LSE:GABI)

Debt – Direct Lending

7.11

1.60

-

abrdn Equity Income Trust (LSE:AEI)

UK Equity Income

6.94

6.60

21

CT UK High Income Ord (LSE:CHI)

UK Equity Income

6.86

2.92

-

NextEnergy Solar (LSE:NESF)

Renewable Energy Infrastructure

6.85

2.56

-

Henderson High Income (LSE:HHI)

UK Equity & Bond Income

6.07

1.69

-

Target Healthcare REIT (LSE:THRL)

Property – UK Healthcare

6.02

1.69

-

Montanaro UK Smaller Companies (LSE:MTU)*

UK Smaller Companies

5.91

25.12

-

JLEN Environmental Assets Group (LSE:JLEN)

Renewable Energy Infrastructure

5.90

2.06

-

CT Private Equity Trust (LSE:CTPE)*

Private Equity

5.81

9.72

10

CT Global Managed Portfolio Income (LSE:CMPI)

Flexible Investment

5.26

4.06

11

Lowland (LSE:LWI)

UK Equity Income

5.19

6.01

12

Greencoat UK Wind (LSE:UKW)

Renewable Energy Infrastructure

5.02

2.52

-

Value and Indexed Property Income Ord (LSE:VIP)

UK Equity Income

5.00

2.75

35

Merchants Trust (LSE:MRCH)

UK Equity Income

4.93

2.44

40

JPMorgan Elect Managed Income (LSE:JPEI)

UK Equity Income

4.88

4.02

11

Lindsell Train (LSE:LTI)

Global

4.84

42.18

10

City of London (LSE:CTY)

UK Equity Income

4.81

3.25

56

JPMorgan Claverhouse (LSE:JCH)

UK Equity Income

4.80

5.81

49

International Public Partnerships (LSE:INPP)

Infrastructure

4.72

2.57

13

Dunedin Income Growth (LSE:DIG)

UK Equity Income

4.59

1.97

11

abrdn Asian Income Fund (LSE:AAIF)

Asia Pacific Equity Income

4.53

1.66

13

Athelney Trust (LSE:ATY)

UK Smaller Companies

4.52

2.01

19

Schroder Income Growth (LSE:SCF)

UK Equity Income

4.48

3.84

26

Invesco Asia (LSE:IAT)*

Asia Pacific Equity Income

4.42

28.90

-

Murray International (LSE:MYI)

Global Equity Income

4.41

2.98

16

BBGI Global Infrastructure (LSE:BBGI)

Infrastructure

4.41

3.24

-

Henderson International Income (LSE:HINT)

Global Equity Income

4.24

6.26

-

Murray Income Trust (LSE:MUT)

UK Equity Income

4.13

1.36

48

Schroder Oriental Income (LSE:SOI)

Asia Pacific Equity Income

4.06

4.32

15

Source: AIC/Morningstar, as at 22 July 2022. *These companies have paid dividends out of capital profits over the past five years, or have a target dividend set at a fixed percentage of the investment company’s net asset value (NAV), which may include distributions from capital profits. **The number of consecutive years over which an investment company has increased its annual dividends is given only for investment companies that have a record of at least 10 years of dividend increases.

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