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Dividend stocks are a popular way for some investors to generate passive income. Owning the stock gives them the right to receive a cut of the company’s declared dividend. And this money can be reinvested back into the stock market, compounding the benefits. Here’s how the strategy could play out over time.
Putting the money to work
With £10k in savings, it provides a good initial pot of cash to put to work. To begin with, I’d look at what yield the investor is trying to target. After all, the £10k is likely only earning 2%-3% annual interest in a regular savings account. Therefore, the added risk of buying stocks (where the capital can fluctuate in value every day) must be offset by a higher reward.
The average dividend yield of the FTSE 100 is 2.99% so I don’t think it makes sense to invest in a tracker. Instead, an investor could actively pick a selection of stocks in the 6%-8% range. The potential income is high enough to warrant withdrawing funds from savings and investing them in the market.
The next factor is assessing how long it could take to reach the goal of £455 a month in dividends. If only the initial £10k were used and no further money were injected, it could take 30 years, with an average yield of 7%. That’s a long time! However, if an investor could supplement the lump sum with £250 each month, it could take just under 12 years.
Of course, there’s no guarantee on these timeframes. The hot income stock of today could struggle years down the line, cutting the dividend. That’s why it’s good to have a diversified portfolio, so at least if this does happen, the impact can be manageable.
Boosting dividend payments
Actively picking good dividend shares in the 6%-8% yield range needs some research. One example to consider that I’ve researched is Chesnara (LSE:CSN). It has a current dividend yield of 7.2%, with the share price up 30% in the last year.
The FTSE 250 company isn’t the most traditional insurance and pensions firm, as it focuses on buying and managing existing life insurance and pension policies. It earns fees from administering these policies and profits from managing the investments backing them.
Its CEO said in the interim results in August that it saw “cash generation up 26%, an increase in our solvency ratio and a further 3% increase in the interim dividend”. Further, in December, it got regulatory approval for the takeover of HSBC’s UK life insurance division. This has boosted investor sentiment already, but could help even further as more details about the extra £4bn of assets under administration and 454,000 policies come through.
Against this backdrop, the dividend per share has been rising for several consecutive years. I can see this continuing based on the momentum from last year. However, one risk is that the stock market underperforms this year, leading to volatility in the assets Chesnara manages. This could not only hurt earnings but also cause reputational damage for clients who have their money with the firm.
Overall though, I think it’s a good stock for investors to consider as part of an overall strategy.
When/if SUPR continues up to the broker’s target, as it’s just below resistance those that trade TR may take some or all of their profit.
When/if SUPR continues up to the broker’s target, as it’s just below resistance those that trade dividend re-investment may take some of their profit but continue to hold for the dividends.
Those that hold for the dividend to pay their bills may just continue to hold until the yield falls and they switch positions.
Dunedin Income Growth: positioning for resilient returns across market cycles
Ben Ritchie and Rebecca Maclean outline recent portfolio changes, mid-cap opportunities and how Dunedin Income Growth balances income, quality and sustainability.
Kepler Trust Intelligence
Updated 07 Jan 2026
Disclaimer
This is a non-independent marketing communication commissioned by Aberdeen. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Video
Ben Ritchie and Rebecca Maclean, co-managers of Dunedin Income Growth Investment Trust (DIG), discuss recent portfolio changes, including additions such as Tesco, Softcat and Experian, alongside exits where fundamentals have weakened. They explore why UK mid-cap valuations look compelling, the impact of interest rates, geopolitics and investor flows, and how a focus on cash generation, dividend growth and a differentiated sustainable investment approach underpins the Trust’s long-term income and return objectives.
Transcript
Hi, my name is Ben Ritchie. I’m the co-manager of Dunedin Income Growth Investment Trust. We’ve made quite a lot of changes to the portfolio in the last six months. And I think that reflects two things. One, the ongoing compelling valuations that we’re able to find in the UK and European equity market. And secondly, the strength of the idea generation that we have within our wider team of UK equity specialists. We’ve added a number of really interesting companies to the portfolio that have a combination of enduring long-term growth potential and very attractive implied returns combined with strong cash generation and the ability to pay high and growing dividends back to investors.
Just to give you a flavor of some of those, we’ve added Tesco into the portfolio, the UK supermarket, a business with a tremendously strong market position that we think is going to get only stronger from here, will be increasing its returns, growing its margins, accelerating its top line development and ultimately returning that back to investors in the shape of dividends and buybacks.
We’ve also initiated some smaller positions in Experian and Compass Group. Experian is the credit rating agency and data provider, very significant businesses in the United States, but also strong positions in the UK and Latin America. That’s a business that we think is going to grow very nicely, particularly on the back of enabling AI and its products. We see strong, consistent revenue growth, again, resulting in cash generation and good, consistent dividends back to investors.
Compass is another business we like, the global specialist in contract catering, a very difficult business to compete in. They are by far the global number one, dominant positions in a wide range of markets. And a company that we think can grow at high single digits, expand its margins, make acquisitions, buy back stock, and ultimately grow earnings at a good double digit clip on a relatively consistent basis.
The thing that pulls these companies together is that they are relatively acyclical. Yes, economics matters. But ultimately, we expect these businesses to be able to grow regardless of the economic cycle. And we think that’s a really important point. Having had a pretty extended period of relatively ok markets, when things get tougher, we think these companies are in a good position to be able to continue to perform very well.
On the other side of that, we’ve been tending to some of the businesses that have found life a little bit more difficult. And while we’re long-term investors and we want to back businesses for the long term, ultimately, sometimes it does just get a little bit too difficult. So, we’ve exited out of chemical distributor Xalys, which has found significant end market declines as consumption of chemicals across the world has been put under pressure, partly by Chinese production, but also by the relatively subdued economic environment and that’s put pressure on their business model.
And the other company which we’ve exited during the period would be Novo Nordisk, a well-known firm, a specialist in diabetes provision and also in obesity treatment, but where they seem to have lost the race to dominate the obesity category with Eli Lilly and we took the opportunity to sell out of that in the middle of the year. And that capital which we freed up, we’ve been able to reinvest back into some of those more compelling opportunities that I’ve talked about.
So, a pretty active period for us within the portfolio. We still see plenty of opportunities. The hopper of new ideas has never been fuller. We see compelling opportunities across the market cap spectrum and really we’re pretty excited about what awaits over the next six months as well.
Hello, I’m Rebecca Maclean and I co-manage Dunedin Income Growth Investment Trust. So, one of the aspects of the strategy is that we invest across the market cap spectrum. So, we have currently about 45 % of the portfolio in companies with a market cap below £10 billion and we’re seeing lots of opportunities within the mid-cap space.
And actually, if you look at the valuation of the mid-cap market in the UK, the FTSE 250, it’s showing quite an unusual yield signal. So, the dividend yield on the mid-cap index is now higher than the large-cap index, which is very unusual given historically the level of dividend growth that we have seen out of smaller businesses compared to larger companies, which are typically in more mature markets. So, valuation is certainly signaling interesting opportunities within the MidCap space.
We have a number of holdings within this, so one is Softcat, which is the UK’s leading value-added reseller of technology to SMEs in the UK. It’s benefiting from structural growth in terms of demand for technology. But it’s also gaining market share because it has a broad offering, it’s meeting its customers’ needs in terms of helping them find what technology solutions will be best for them and they’ve got a very strong culture too. So this is a company which has delivered excellent growth historically and we expect strong growth in the future, it’s cash generative and this supports an attractive and growing dividend plus special dividends too given the strength of their balance sheet.
In terms of what are the catalysts to help mid-caps going forward after a period of underperformance compared to their large cap peers, I think there are a couple that I’d highlight. The first would be to look at the macro because the mid-cap area is more domestically focused. And I think if we saw an improvement in economic activity, consumer confidence and business confidence, this will certainly help some of those cyclical sectors, whether it’s house building and real estate, which are currently trading towards the trough of their cycle.
The second catalyst is interest rates. So typically these businesses are more interest rate sensitive. And if we look at the inflation data that’s been printing in the UK, this is supporting our economist view that interest rates will continue to be cut. So our economists are expecting another 25 basis points cut in December and another three basis points, three cuts in 2026. So this will be supportive for the mid-cap part of the market. And finally, the picture has been clouded in the UK by persistent outflows out of UK equities. And this has disproportionately impacted smaller and mid-sized businesses compared to large-cap companies.
So I think if we saw a shift in terms of investors allocation towards the UK and an inflow into UK activities, this would be supportive for that part of the market. We certainly see mid caps as being attractive hunting grounds for looking for quality and resilient businesses, which are now screening to be at an attractive valuation.
Well, geopolitics is always a big driver of companies within the portfolio. And I would say it has been a headwind overall over the past few years. I’d pick out three specific developments. First of all, within the UK, we’ve certainly seen a consistent degree of political tumult. We’ve seen indecision around economic decisions from both the previous government and the current government. And that has been unhelpful, particularly for domestic-facing companies. At the same time, we’ve seen Donald Trump and the global tariff trade war, again, has been unhelpful for businesses looking to export and do business overseas and again that has been a headwind.
And one of the drags that’s been ongoing and continuous both I think affecting companies we don’t own and to some degree affecting companies and the wider market in which we do invest has been the Ukraine conflict. The Ukraine conflict has certainly driven up inflation in Europe and the UK and has also significantly boosted the defence sector, a sector which we can’t access given our sustainability criteria.
So these geopolitical elements have been something of a headwind for the Dunedin portfolio over recent times. But the good news is we think that some of these things are starting to ease. Tariffs will annualise as we move through 2026. We don’t think that’s going to happen again. If anything, they may become looser. And that, we think, will benefit those overseas international companies. And we’ve tended to favour those types of global businesses with wider reach and better growth prospects.
I think again when we think about the Ukraine, perhaps it’s more likely that we’ll see a resolution there. And that could be very helpful in terms of energy and commodity prices, both in the UK and abroad. And both of those elements could also come together in terms of helping to generate a little bit of weakness in sterling as well, which has been very strong and again acted as a bit of a headwind. And in terms of the domestics, we don’t have great expectations for this government. We don’t have great expectations for the economy.
But I don’t think anybody else does either. And the opportunity to create some form of stability that companies can work with and build off is definitely there. By the time you’re listening to this, we will have had the budget. We hope that at the very least, it doesn’t make things more difficult for UK corporates, but we think it’s very much unlikely to have the same negative impact which we saw from the same event 12 months ago. And so if we can see stability on the domestic front, we think there’s a big prize to go for.
From the Bank of England potentially being able to reduce interest rates, which could be a significant tailwind for the UK economy and the Dunedin portfolio. We’re optimistic about 2026 and the impact of tariffs and there could even be some benefits to come through from a resolution to the conflict in the Ukraine. And so the geopolitical environment having been unhelpful over the last two to three years could turn, if not into a tailwind, then certainly into a much more neutral platform for the portfolio.And that could be very good news for us.
So one of the points of differentiation for the need in income growth is that the Trust does have a sustainable investing approach, which is unique in the UK Income Investment Trust market. And as a reminder, there are three-pronged approach. So there are exclusions in place which are in place in order to reduce the portfolio’s exposure to parts of the market which face the highest environmental, social and governance risks.
We also have a positive allocation to companies that we see are leaders in ESG, companies that provide sustainable solutions, but also companies that we believe are going to participate in a transition and improve their sustainability performance over time. And thirdly, we look to engage in our portfolio, so meeting our companies regularly, discussing these issues with them in order to understand their concerns, the risks and the opportunities and support these businesses through their journey.
So, part of the element of the approach is to have exclusions. It’s about 25 % of the FTSE All-Share, which is excluded according to this policy. And if you look at the impact of that on the investable universe, we see no impact on their ability to generate income from looking at that investable universe that’s screened from our sustainability perspective. So, that’s supportive.
From a performance perspective, there have been parts and times when the sustainability screen has been a headwind. So I’d point to the start of 2022 after the Ukraine war where we saw a spike up in commodity prices. This did lead to a headwind in terms of relative performance of that investable universe versus the benchmark. And this year again, when we look at the aerospace and defense sector, which is up over 85 % the year to date, then, and that’s part of the sector of the market that we don’t invest in, that has been a headwind.
But if we look over the longer term, we don’t see it as a material headwind to performance. Sustainability is very much aligned to our approach when we think about the quality of businesses. Indeed, it’s one aspect of quality which we assess when we’re looking to select the highest quality companies for the portfolio. And we’ll continue to do that in line with our investment strategy, which is to focus on total return, quality and resilient businesses that meet the company’s sustainable and responsible investment policy.
If you need any more information about Dunedin Income Growth Investment Trust, please visit our website for more information.
Energy Yields Up to 8.4% While Herd Chases Orinoco Pipe Dream
Brett Owens, Chief Investment Strategist
Wall Street is treating Venezuela like the next “black gold” rush.
Nah—I don’t think so. Let me explain why and share my favorite US-based energy dividends up to 8.4%.
Vanilla investors are piling into the majors like Exxon Mobil (XOM) and Chevron (CVX), betting that regime change is a “buy” signal for anyone with a drill bit near Venezuela’s flush Orinoco Belt. But we careful contrarians know better. Energy infrastructure does not simply bounce back overnight. (Fictional TV “landman” Tommy Norris is not taking a plane south to instantly fix production with a few phone calls, hard lines and Michelob Ultras!)
Venezuela’s oil system has been decaying for decades. It is beyond broken. Rusted shut, really.
Let’s stay home while the Wall Street suits board their private jets to chase their new shiny geopolitical gusher. The real money is here in America with the “toll bridges” that are actively pumping oil and moving gas today.
Traffic is what the US energy system does in 2026. We produce. We refine. We export. Oil is cheap but the pipes are still filling up. Whether prices move higher or lower, we want companies that will get paid.
Diamondback Energy (FANG), my “Permian Prince,” is the most efficient operator in the most prolific oil patch on the planet. This is a cash cow hiding in plain sight.
Diamondback doesn’t “explore” in the traditional sense; they basically manufacture oil. They’ve turned the Permian Basin into a factory floor, using “Simul-Frac” technology to frack multiple wells simultaneously like an assembly line. This relentless focus on efficiency has slashed their corporate breakeven to a rock-bottom $37 per barrel.
Let me repeat: Diamondback makes money down to $37. Oil can crash from today’s $57, OPEC can argue, the global economy can stumble, but Diamondback still throws off free cash flow. And they’ve committed to piping 50% of that cash back to us through a combination of stock repurchases plus a unique “base + variable” dividend model:
Diamondback’s Shareholder Reward Plan
And Diamondback just acquired Endeavor Energy, quietly making the combined company more efficient and profitable. Endeavor was the largest private explorer in the Permian, with top-tier Midland Basin acreage. By swallowing them, Diamondback “high-graded” its inventory.
Think of it like a puzzle board. Before the merger, Diamondback owned pieces of land next to Endeavor’s pieces. Now, they own the whole board. This allows them to drill longer laterals, extending their horizontal wells from 10,000 feet to 15,000 feet. Longer wells mean more oil for the same surface work.
Management expects $550 million in annual synergies. This cash drops straight to the bottom line—and then into our pockets via dividends and buybacks. Diamondback yields 2.7% but remember, this is only the “base dividend.” When the variable kicks in, this divvie has upside.
And the domestic energy dividends don’t stop at the wellhead. The “toll collector” that moves the gas quietly powering the US economy is Kinder Morgan (KMI). Kinder is a must-have in the AI age, a “pick-and-shovel” play that few investors think of. Every query to a chatbot taps into server racks that draw electricity on the scale of a small city. Which is why AI is evolving from a tech to a power story.
Kinder runs 79,000 miles of pipelines, moving an incredible 40% of the natural gas produced in the US. They get paid whether gas trades for $2 or $10. This energy toll collector threw off $5 billion in distributable cash flow last year, comfortably covering the 4.2% dividend.
And for those yelling: “More yield!” I hear you. Kayne Anderson Energy Infrastructure (KYN) owns the top names in energy logistics, including a large position in Kinder.
The appeal of KYN is that it yields 8.4% and trades at an 11% discount to its net asset value (NAV) It’s a way to buy Kinder & Co. for just 89 cents on the dollar.
Why is this dividend deal available in a supposedly efficient market? KYN is a closed-end fund (CEF), and CEFs trade crazy. Sometimes they fetch premiums to NAV, other times they demand a discount. It depends whether retail investors (the big players in CEFland) are salivating with greed or panicking.
When they freak out, KYN’s price drops, we grab the fund.
And by the way, KYN avoids the K-1 hassle that many of its individual holdings generate come tax time. The fund issues one neat 1099 form, just like a regular stock.
Bottom energy line? Let’s leave the “shiny objects” in Venezuela and instead focus on the cash cows in our own backyard. Go ahead and chase away, Wall Street. We’ll stay home and collect the tolls.
Diamondback and Kinder are current plays in our Hidden Yields portfolio
Our columnist highlights a handful of trusts that he hopes will deliver a high and rising income.
8th January 2026
Reduced returns from “risk-free” deposits are likely to increase the relative attraction, and share prices, of investment trusts that yield a high and rising income. So here are six of mine:
Tufton Assets
This ship leasing specialist’s dividends currently equal an eye-stretching 8% of its share price. Better still, investors’ income has risen by a buoyant annual average of 7.4% over the last five years, according to the Association of Investment Companies (AIC).
It is important to be aware that dividends are not guaranteed and can be cut without notice. But if that rate of ascent could be sustained it would double the value of Tufton Assets Ord SHIP dividends in less than a decade
Here and now, the price of high income has been relatively low total returns of 73% over five years and just 3.4% over the last year – it lacks a decade-long record, having been launched in September 2016 – but the shares are priced 16% below their net asset value (NAV), so do not look expensive.
This is the biggest holding in my ISA, plotting a course to make the most of tax-free income.
Greencoat UK Wind
Renewable energy infrastructure funds have fallen out of fashion, taking share prices with them.
Delivered total returns of 66% over the last decade and just 2.3% over five years, followed by a loss of 15% over the last year.
That decline pushed up the yield to a somewhat dubious 10.5%, rising by 7.6% per year over a five-year period.
I say “somewhat dubious” because a double-digit yield might be a warning of further capital destruction to come.
For example, offshore wind farms might not last as long as expected in the very hostile environment of the North Sea.
I have no idea but note that UKW has increased dividends in line with the Retail Prices Index (RPI) every year since its flotation in 2013 and have no intention of selling shares while they trade 30% below their NAV.
It’s another ISA holding to whistle up tax-free income.
International Public Partnerships
Funding infrastructure can produce inflation-linked income, such as this trust’s 7% yield, rising by 3.1% a year over a five-year period.
Once again, the price of high yield was relatively low total returns of 52% over the last decade, followed by a loss of 3.7% over five years and a positive 13% over the last year.
Maybe it’s because I’m a Londoner but I like the fact that
main underlying holding is Thames Tideway Tunnel, the 15-mile long super-sewer which claims to have kept 12.9 million tonnes of sewage out of the river since opening in 2024.
Despite doing well by doing good, these shares – another ISA holding – trade at a 15.5% discount to NAV.
BlackRock Frontiers
With more than 24% of assets invested in Saudi Arabia and the United Arab Emirates (UAE), it might seem surprising that this fund yields 4.1% income, rising by an annualised 7.2% over the last five years.
Poland, Turkey and Egypt are the other exotic markets in its top five geographical areas. BlackRock Frontiers Ord BRFI
is held in my self-invested personal pension (SIPP), where its lower yield is justified by higher total returns than any of the three shares mentioned earlier.
It delivered 181%, 88% and 22% over the last decade, five years and one-year periods and is priced 2% below NAV.
Its 3.6% yield might seem relatively modest but total returns of 44% over five years and 31% over the last year have helped make Ecofin Global Utilities & Infra Ord EGL
the seventh-most valuable share in my life savings. It trades 9% below NAV.
Schroder Japan
Until recently, funds focused on the Land of the Rising Sun rarely paid much income and this share’s 3.5% yield might seem nothing to write home about.
NESF’s yield isn’t high because the dividend is unusually generous — it’s high because the share price has been hammered far below the value of the underlying assets. That discount mechanically inflates the yield. A clearer breakdown makes the whole picture snap into place.
🌞 Why NESF’s Yield Looks So High
The share price has collapsed far more than the fundamentals NESF trades at a very deep discount to NAV — around 49p vs. an estimated NAV of ~89p. That’s roughly a 45% discount. When the price falls but the dividend stays the same, the yield spikes. This is exactly what’s happening.
The entire renewable energy sector has been hit by higher interest rates Higher rates reduce the attractiveness of income‑producing assets like solar funds. According to sector commentary, this macro pressure has driven a broad derating across renewables, including NESF.
NESF’s discount is unusually large — even compared to peers QuotedData notes that NESF has one of the highest yields in the FTSE 350 because the discount is “hefty and irrational” relative to the underlying cash generation.
The dividend is actually well covered NESF’s dividend was 1.3× cash-covered in FY2024, with a target of 1.1×–1.3× for FY2025. This means the payout isn’t being propped up by financial engineering — the assets are generating the cash.
Market sentiment is disconnected from fundamentals Investors are pricing in:
interest-rate risk
regulatory uncertainty (e.g., ROC/FiT consultations mentioned in announcements)
general pessimism toward UK-listed renewables But the underlying solar assets continue to produce stable, inflation-linked revenue.
📊 Putting it all together
🎯 The real reason the yield is high It’s not that NESF is paying an unusually large dividend — it’s that the market is unusually pessimistic. The yield is a symptom of the discount, not a sign of reckless payouts.
BRWM is a share I have traded but not in the Snowball also not recently so I missed the latest out performance. You can’t own all the shares.
In general you want to buy and hold above the cloud.
In the cloud watch as the share could go up or down.
Beneath the cloud the share is raining on your parade and you should consider selling and wait to buy back.
As you can see from the chart, you have to kiss a few frogs before it turns into your prince/princess.
If you bought as part of a dividend re-investment plan not only have you earned dividends which could have been re-invested back into BRWM, you could also then have re-invested the dividends back into your Snowball as the price rose and the yield fell, you would also have all the outperformance.
Whilst nothing works all the time with charting, the obvious is, if you buy a share paying a dividend just in case your analysis is wrong, and buy and hold for the long term, the odds are on your side.
You would have achieved the holy grail of investing, where you can take out your stake, re-invest it in another share and continue to receive income on a share that costs you nothing, zero zilch.
If you bought after the covid crash around 250p the dividend was 22p, a yield just under 9%.
The current dividend is 23p, so you would still receive the buying yield but the current yield is 2.5% so the incentive would be to sell some and invest the money back into a higher yielder.
