The UK investment trusts yielding more than 4.5% (and growing dividends)

 Tom Sieber Thursday, August 22

The Bank of England has made its first cut to interest rates for more than four years, which has a direct impact on the income savers will receive on cash. And the lower-than-expected jump in UK inflation reported on 14 August only boosted market expectations that the Bank of England could deliver another rate cut next month.

As the rate environment turns, those who want to grow the income their money generates may want to shift out of cash and money market funds and into the financial markets and, in particular, stocks and shares which offer the potential for both yield and capital appreciation. Dividend paying shares offer a generous income today, but with the added kicker of potential growth in that income stream into the future, although of course dividends are not guaranteed.

But investment trusts can be a good option for those wanting a steady income stream and some potential capital growth. Thanks to their structure, which allows them to hold back income during good years to help sustain payments in more fallow periods, investment trusts often have enviable track records of dividend growth going back years or even decades.

Because they are invested in a diversified portfolio of dividend-paying shares, they also reduce the risks of an individual company cutting or cancelling its dividend.

The yields available from trusts in the AIC (Association of Investment Companies) Global Equity Income sector are appreciably lower than those from the UK Equity Income category. This reflects the relatively depressed valuations in the UK market, particularly compared with the US, and a stronger dividend-paying tradition and higher payout ratios (i.e. the proportion of a company’s earnings paid out in dividends) than in other geographies.

Looking at the list (below) we have included everything with an historic dividend yield of 4.5% or more and have only included trusts that have delivered growth in their dividend over the past five years. This does exclude one of the trusts with the best five-year dividend growth (of more than 11%) in Law Debenture. While the starting yield is a relatively modest 3.7%, the company benefits from a unique combination of a traditional investment trust holding income stocks alongside a cash-generative professional services operating business.

Trust	Discount/premium (%)	10-year share price total return (%)	Ongoing charges (%)	Five-year dividend growth (%)	Dividend yield (%)
Chelverton UK Dividend Trust	1.7	88.3	2.4	7.0	7.5
Abrdn Equity Income Trust	−4.63	41.8	0.9	3.5	7.0
CT UK High Income Trust	−6.79	73.3	1.1	2.2	6.1
Shires Income	−10.20	71.1	1.1	1.8	6.0
Dunedin Income Growth	−11.40	70.0	0.6	2.0	4.9
JPMorgan Claverhouse	−5.05	93.5	0.7	4.6	4.8
Merchants Trust	0.8	105.8	0.6	1.8	4.8
Lowland Investment Company	−11.70	44.5	0.6	3.0	4.8
Schroder Income Growth Fund	−11.00	70.8	0.8	3.2	4.7
City of London	−0.58	84.5	0.4	2.1	4.7
Diverse Income Trust	−8.21	69.4	1.1	3.6	4.5

Source: AIC, data to 15 August

Of the names in the table, Chelverton UK Dividend has the highest yield at 7.5%. Two points to note: it invests in UK small caps – which can be more prone to cutting or cancelling dividends, and it also has very high ongoing charges – 2.44%, according to the AIC.

Another two names are worth highlighting for the income they offer today and income growth potential. The first is Dunedin Income Growth, which focuses on quality companies that meet its sustainability criteria as well as offering ‘real’ income growth over the long term. The trust focuses on names that can sustain dividends, even during tougher times. The portfolio includes UK-listed names like consumer goods giant Unilever and electricity network operator National Grid, supplemented by a couple of overseas selections in Novo Nordisk and ASML. The trust trades at a discount to net asset value (NAV) of 11%, has ongoing charges of 0.64% and yields 4.9%.

The other name in the list to highlight is JPMorgan Claverhouse, where a balanced approach, mixing growth and value, has helped deliver a measure of consistency in returns and where the company has pledged to increase dividends at a rate close to or above inflation. Steered by William Meadon and Callum Abbot, research firm Kepler notes the trust has outperformed in two-thirds of the quarterly periods since the former took over management of the trust in 2012. Like Dunedin there is a focus on quality as well as high yields, with top holdings including the likes of Shell and private equity outfit 3i Group. Ongoing charges are 0.7% and the historic yield is 4.8%.

Here’s how I’d invest my first £500 today for a future filled with passive income.

by John Fieldsend
The Motley Fool

One of the less talked about aspects of making your money work for you is the psychological aspect. We are, after all, only human and come with a range of biases and whims we can’t control. And when it comes to our hard-earned money, it’s quite difficult to let go of them, especially when trying to build passive income through the short term erratic behaviour of the stock market.

Imagine investing for the first time in early 2020. I remember quite vividly what it felt like to watch my portfolio crash as the pandemic gripped the world. For a short time, it seemed like lockdowns would last a decade, the stock market would flounder and everything I’d worked towards in my life was going down the toilet.
If that was my first time investing I might have wondered why on earth I would subject myself to such a feeling and would have thought: “This is definitely not for me.”

On the other hand, if I’d invested after the recession in 2009 it would have been quite the opposite. The recovery was swift for the FTSE 100. Investing in the index in March 2009 would have given me a 46% return in just a year.

I might have put in £1,000 and quickly seen it shot up to £1,460 or thereabouts and thought: “This is definitely for me.”

Sending us some cash
While we can’t remove the element of timing entirely, we can limit its effect on our brains. One way to do that, and I think a great place to start for newer entrants to the world of investing, is dividends. This is where a company shares a portion of the profits directly. They literally send us the cash.

Therefore, even in a down year, we’d expect to see a tangible pile of cash in our accounts. And the FTSE 100 shines with many such big-paying companies that investors prize for reliable and large dividend payments.

Big fry
One company like this, and one I hold myself, is Legal & General (LSE: LGEN). It operates in London’s large financial sector and earned revenue of £9bn last year against a market cap of £13bn. The company isn’t small fry, and neither is its dividend.

The forward dividend yield has been rising and now sits at 9.05%. That much cashback would make a pretty sight for a first £500 investment.

L&G has a strong balance sheet and earnings that are growing. These are signs that this isn’t just a stock to buy for a single year of payments, but that it can provide a good place to grow money over the longer term too.

Dividends aren’t guaranteed, of course. Lowered interest rates, if and when they come, will eat into margins a little. The looming threat of a possible global recession was brought more sharply into focus in recent weeks and that’s another point to be cautious of.

But for a first foray into stocks, I think targeting a big dividend payment can do a lot on the psychological side of things. It’s nice to see your money working for you and that’s what a chunky dividend provides in the form of a very real bundle of cash sitting in a brokerage account.

££££££££££££

The emotional benefits of dividend re-investment.
In fact, with this investment strategy you can actually welcome falling share prices.

As all the dividends for August have been received the total is now £6,989.75

Cash for re-investment £410.71

Dividend Stocks Are the Best Passive Income

Dividend-paying stocks are companies that offer a regular payment to investors in the form of cash. The payments are measured as a percentage of the current stock price, usually paying out 1% to 3% APY. 

But dividend stocks aren’t necessarily the best form of passive income. Here are a few downsides:

• Dividends reduce the stock price
• Dividends are taxed as income (unless in a tax-advantaged account)
• You need a large investment to earn much per month

Dividend stocks can be great investments when you are looking for extra income, but to earn even $100 per month you usually would need thousands of dollars up front.

Bottom Line

Passive income isn’t the Holy Grail that everything says it is. It requires hard work and up-front investment.

Don’t expect to retire next year from passive income if you’re just getting started; it takes a while to build a meaningful income on the side. While you might need to take some action to build your passive income streams, it is worth it in the long run. Passive income can help you do more of what you enjoy and eventually quit your job once your passive income covers your monthly expenses. Until then, keep working hard to build more passive income into your life.

https://www.sharesmagazine.co.uk/magazine/apiDownload/2024-08-22-Shares/0c057244d48716bb1cc9c38b88335080?edition=AJB

Open Web page and click on Race for Income

If the Snowball earns £9.5k in income this year and then u compound the earned dividends at 7%, the following will be your plan to follow.

After Ten years

income 19k pa

Twenty years

income 38k pa

Thirty years

income 76k pa

U will have to allow for inflation and in some years u may not be able to re-invest the earned dividends at 7% but the totals are not in doubt just the number of years.

Remember with compound growth, u make more income in the final years than in most of the early years.

Plant a twig

U may not have a pot of money for investment but investing monthly on a regular basis the following could be achieved.

Remember inflation, so £250 in 20 years would be a much lesser commitment than £250 today.

GL

Dividend Wealth Journal Dividend Aristocrats

Dividend Wealth Journal: The Dividend Aristocrats Some may have heard the term dividend aristocrats, others may find it odd. I want to discuss what dividend aristocrats are and why it’s a solid dividend investing strategy.    A dividend aristocrat is any S&P 500 stock that has increased its dividend every year for at least 25 years. It’s a company that is able to boast long-term growth, return on capital, and a consistently growing stream of income to its investors.    There are over 68 dividend aristocrats in the S&P 500 right now, and there is also an S&P Index called the S&P 500 Dividend Aristocrats Index that trades under the ticker SPDAUDP.    Who are some of these companies ? Dividend Aristocrats are often large, established companies with a history of weathering economic downturns. They’re typically leaders in their industries, which gives them a competitive edge and pricing power.    This stability is crucial during economic turbulence when lesser firms might cut dividends or see significant stock price declines.    For a long-term investor, these stocks provide a reassuring combination of steady income and potential for capital appreciation.   Increasing dividends for a quarter-century is also no small feat… It requires solid financial management and a hearty business model.    For us as investors, this track record is a strong indicator of a company’s health and future viability.    When a company commits to raising dividends annually, it’s signalling confidence in its cash flow and profitability. Which are key traits that can attract more investors and potentially drive up the stock price. The Power of Compound Interest. One of the most compelling reasons to invest in Dividend Aristocrats is the power of compounding dividends.    Reinvesting your dividends to purchase more shares can significantly boost the value of your investment over time. It’s like rolling a snowball down a hill. As it grows, so does its ability to gather more snow.    This effect can turn a modest initial investment into a substantial sum over decades.   And of course, there’s also the stability aspect of these type of dividend stocks.  Dividend aristocrats, with their long history of stable growth, can serve as a buffer against volatility, given their history of steady returns.    Plus, many of these companies span various sectors, they offer diversification. Which reduces your portfolio’s risk exposure to any single economic event or sector downturn.

There are two dividends to be declared in early September. When these are declared I will be able to update this year’s income fcast and target and pencil in next year’s income fcast and target.

No change in the top-three on Winterflood’s list of highest monthly movers. That means two new investment companies make it onto the list this week including one which could be a contender for having the longest name.

By Frank Buhagiar•19 Aug, 2024

The Top Five

Crystal Amber (CRS) retains top spot on Winterflood’s list of highest monthly movers in the investment company space after almost doubling its gain to +23.9% from +13.5% previously. That extra 10% came after the small-cap investor announced an Extension to its Share Buyback Programme. Since 8 December 2023, CRS has spent £8.4 million buying back its shares and between now and 31 October 2024 the £80 million market cap plans to spend another £1.6 million. Easy to see why – since the start of the buyback programme in December the discount to net assets at which the shares trade at has narrowed from -33% to -5%.

Jupiter Green (JGC) not only keeps hold of second place but also its +12.8% gain on the month. Still no news out from the environmental investor whose shares have been on the march ever since 25 July 2024. That neatly coincides with the publication of the fund’s latest doceo video update. Must have been something investment manager Jon Wallace said.

PRS REIT (PRSR), yet another to hold on to its position on the list – shares in the build-to-rent fund extended their gain to +12.7% from +12.2%. July’s well-received Fourth Quarter Update still working its magic, although the long-awaited cut in UK interest rates at the beginning of August probably didn’t hurt the REIT either.

ICG-Longbow Senior Secured UK Property Debt Investments Limited (LBOW), a contender for the investment company with the longest name, a new entry in fourth thanks to a gain of +12.3%. LBOW hasn’t issued a press release since a Result of AGM announcement on 18 June 2024 but a look at the graph shows the share price added +5.5% on 1 August 2024 – the day of that UK interest rate cut!

SDCL Energy Efficiency Income Trust (SEIT) completes the top five. An +8.7% gain enough to bag this week’s final spot. The fund’s only press release of the week a Holding(s) in Company announcement, highlighting how General Atlantic has increased its stake in SEIT to over 14%. The American growth equity investor has been regularly upping its holding in SEIT over the past year or so. Question is, will General Atlantic stop there or continue to increase its stake?

Scottish Mortgage

Scottish Mortgage’s (SMT) share price finished the week ended Friday 16 August 2024 off -4.2% on the month. That’s an improvement on the previous -7.6% deficit. The NAV monthly loss improved too, shrinking to -4.1% from -7.6%. Similarly, the wider global sector’s loss on the month narrowed to -2.1% from -4.1% seven days earlier. No surprise a good week was had by all, after all the tech-heavy Nasdaq put on +5.2%.

MoneyWeek finds two UK small-cap investment trusts that have growth potential, while The Telegraph believes Patria Private Equity Trust is worth considering for your portfolio.

By Frank Buhagiar

20 Aug, 2024

MoneyWeek: Two Small Cap Investment Trusts With Growth Potential

What to do when you find two funds from the same sector that both fit the bill – which one do you go for? It’s a problem faced by MoneyWeek after running the rule over Rockwood Strategic (RKW) and Odyssean (OIT), two UK small-cap investment trusts managed by Harwood Capital. Before revealing which one gets the nod, MoneyWeek first sets the scene, highlighting how UK small caps have a strong track record of outperformance – since 1955, the Numis Smaller Companies index has returned a compound +14.1% per annum compared to the FTSE All-Share’s +11%.

The article then goes on to describe what it looks for in a small-cap fund: “A small-cap manager needs to find companies with exceptional prospects to overcome political and fiscal headwinds, to take an active role in shaping the company’s management and strategy, and to guide the company towards a sale at a premium.” Cue £90million RKW and £230million OIT. Being stablemates, both funds have a fair bit in common. They have concentrated portfolios: OIT holds 20 companies; RKWbetween 25 and 30. One difference though, the type of companies they invest in: RKW typically invests in recovery plays found in the smaller end of the market (sub-£200 million market caps); OIT focuses on larger higher-quality growth stocks.

Both funds trade at a premium to NAV too, enabling them to issue new shares. That’s partly down to having strong long-term track records: over five years, OIT has returned +66% compared to the Numis index’s +26%; RKW +129%. MoneyWeek believes the two trusts’ outperformance is testament not only to the quality of the companies they invest in, but also the approach adopted by Harwood who “unlike most managers, takes an active role in guiding them in the right strategic direction, using considerable in-house private equity experience.” A lot in common then, but which of the two to buy? Over to MoneyWeek “The toughest call is to decide which one to buy. Perhaps both?”

Questor: This Index-Busting Trust Proves High Fees Can Be Justified

Sometimes it pays to, well, pay up. That’s the message of the above Telegraph Questor Column on Patria Private Equity Trust (PPET), formerly abrdn Private Equity Opportunities. Firstly, like other private equity funds, PPET provides investors with exposure to companies and sectors that are otherwise difficult to access. Secondly, PPET’s long-term performance record is well ahead of almost all global equity investment trusts, let alone the market: over 10 years, PPET has returned +279% compared to the MSCI All Countries World’s +204% and the FTSE All-Share’s +83%. Go longer and the numbers are even more impressive: over 20 years, the fund has returned +908%, not far off double the MSCI index’s +586%.

These returns have not been generated by just buying low and selling high. Rather PPET helps the managers of the companies in which it invests in to build their businesses. In all, the fund has a diversified portfolio of around 700 companies. Exposure to these businesses is largely gained via funds managed by specialists, although the portfolio does hold 30 direct investments. Despite the strong performance, like other private equity funds, PPET trades at a steep discount to the value of its investments, a nod to investor doubts over valuations assigned to underlying assets across the sector. But Questor believes “That is manifestly wrong, as most realisations of investments are struck at a sizable premium” – over the six months to 31 March 2024, PPET achieved a +27.3% average uplift on exit.

As for those high fees, Questor does not dispute these, “However, the bulk of these fees is determined by the success of the investment. All of the return figures quoted above are net of fees. The reality is that the underlying managers are paid on initial commitments and realised profits.” And then there’s the fund’s dividends. PPETis on track to increase its payout by 5% this year which would be the 10th successive year of dividend growth. As the article concludes “With a decent yield, a big discount that could close and a great track record, Questor believes that Patria Private Equity Trust is worth considering for your portfolio.”