· Net Asset Value (NAV) of £603.8 million and NAV per Ordinary Share of 108.5 pence (31 December 2024: £634.4 million and 112.3 pence), principally driven by lower power price forecasts.
· Plentiful solar resource contributed to better-than-expected production in the UK, Foresight Solar’s core market. Global generation was 4.0% above budget in the six months to June.
· Combined with an active power price hedging strategy, strong operational performance gives the board confidence in the 1.3x dividend cover target for the year.
· The buyback programme was increased to a total of up to £60 million. In the first half of 2025, Foresight Solar distributed £29 million to Shareholders between dividends and buybacks.
A 9.5% dividend yield! 2 dividend stocks to consider for long-term passive income
A lump sum or regular investment in these UK dividend stocks could yield substantial passive income over time, predicts Royston Wild.
Posted by Royston Wild
Published 12 October
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.Read More
The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
These dividend stocks offer enormous yields and long records of payout growth. Here’s why they demand serious attention right now.
A top REIT
Real estate investment trusts (REITs) can be great shares to target long-term passive income. Sector rules state at least 90% of annual rental earnings must be paid out in dividends. This can make the cash rewards they deliver less volatile than those from other dividend shares.
Unite (LSE:UTG) is one trust I feel demands close attention. It operates in the highly defensive student accommodation market, which gives profits protection from changing economic conditions. Following its acquisition of sector rival Empiric Student Property, it will be the UK’s largest operator with 75,000 beds, chiefly centred on the country’s strongest universities.
Unite has proven one of the UK’s most reliable dividend growth stocks, with payouts rising almost every year since 2011. The only exception came in 2019 when Covid-19 uncertainty forced a reduction.
For this year, the REIT’s dividend yield is a large 6.2%, which is almost double the FTSE 100 average of 3.2%. This figure has been boosted by a sharp fall in Unite’s shares on Wednesday (8 October) — then, the company said sales to date had delivered rental growth of 4%, down from 8.2% in the same 2024 period.
I think this represents an attractive dip-buying opportunity to consider.
Competition is tough, and Unite’s problems are being compounded by extra stress on students’ budgets right now. But the long-term sector outlook remains robust, and the company’s increased scale gives it a significant advantage. I expect dividends to continue rising over the next decade and beyond.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Going green
Foresight Solar Fund (LSE:FSFL) is another top dividend stock worth serious attention after recent price weakness.
It’s fallen in value as optimism over sustained interest rate cuts over the next year have declined. As with Unite, asset values come under pressure when rates are higher, and cost of borrowing pressures increase.
While this issue can be significant, the impact it’s had on Foresight’s dividend yield merits serious consideration. Its forward yield is now an enormous 10.7%.
Like any renewable energy stock, the company has significant long-term investment potential as the move from fossil fuels continues apace.
Foresight has ambitious plans to capitalise on the green transition — the business has 1 GW of capacity across its assets, and plans to treble its development pipeline to 3 GW from current levels, with growth focused on the UK and Europe where clean energy policy is especially favourable.
Investing in energy producers has another significant advantage for investors. Electricity demand is largely unchanged across the economic cycle, giving companies the financial strength and the confidence to steadily raise dividends.
In the case of Foresight, annual dividends have risen each year since it listed on the London stock market in 2013. It’s a theme I expect to continue long into the future.
2 ETFS and a FTSE 250 trust to consider from the London Stock Exchange
Ben McPoland spotlights a trio of investment options from the London Stock Exchange. Collectively, they offer both growth and income potential.
Posted by Ben McPoland
Published 12 October
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
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There are hundreds of different exchange-traded funds (ETFs) on the London Stock Exchange. They span everything from plain vanilla indexes to niche investing themes. Throw investment trusts into the mix, we’re talking thousands of different options!
Here are three that are worth exploring further.
UK property income
Let’s start with the iShares UK Property ETF (LSE:IUKP), which holds 33 UK real estate investment trusts (REITs). These include LondonMetric Property (logistics and retail warehousing), Primary Health Properties (GP surgeries and health centres), Unite (student accommodation), and Big Yellow (self-storage).
This sector remains out of favour due to higher interest rates. Rising borrowing costs restrict portfolio expansion plans, while investors can now find attractive yields in perceived safer havens like government bonds.
The fact that this ETF is concentrated on one sector makes it higher risk. Were the UK property market to enter a prolonged slump, this product would carry on underperforming (it’s already down 20% in five years).
On the plus side, though, investors are being offered a 4.5% dividend yield while they wait for a potential recovery. This should materialise as interest rates slowly but surely come down over the next couple of years.
Many [UK REITs] are trading at significant discounts to their net asset value, offering investors the chance to acquire real estate below its true value.
Kenneth MacKenzie, CEO of Target Healthcare REIT
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Asia Pacific dividends
To diversify an income stream away from UK property, an investor might also look at the Schroder Oriental Income Fund (LSE:SOI). This FTSE 250 investment trust offers broad exposure to dividend-paying companies across the Asia Pacific region.
What I like here is the trust offers a healthy level of geographic diversification. Mainland China accounts for just over 18% of assets, with the bulk of the rest made up of Taiwan, Australia, South Korea, Hong Kong, Singapore, and India.
Holdings include Samsung Electronics and Singapore Telecommunications, as well as DBS Group (Singapore’s largest bank). But it does have an outsized position in Taiwan Semiconductor Manufacturing. Any weakness in the Taiwanese chipmaking giant’s share price could negatively affect performance.
The rest of the ETF looks well-diversified, though. And over the next decade, I expect institutional investors to start allocating more capital outside the S&P 500. Asia should be a natural beneficiary of this — it’s worth noting that the trust has returned more than 20% year to date.
Finally, while Schroder Oriental Income Fund is trading at a record high, it still carries a decent 3.7% trailing dividend yield.
Cybersecurity trend
Finishing with more of a growth angle, we have the iShares Digital Security ETF (LSE:LOCK). This one holds 111 stocks across cybersecurity, including leading players like Arista Networks, MongoDB, Datadog, and Cloudflare.
As we’ve seen recently with high-profile hacks at Jaguar Land Rover and Marks and Spencer, beefing up cybersecurity is becoming a key operational necessity. And this spending is sure to be benefitting many of the ETF’s top holdings.
One risk I would highlight here is valuation. The average trailing price-to-earnings multiple of the ETF’s holdings is around 30. Were tech stocks to tumble, this would hit the fund.
However, to my mind, the cybersecurity trend just has so much further to run, especially as AI rapidly develops. I think investors should consider getting some portfolio exposure.
There’s an untapped portion of the market few people know about …
It’s filled with stocks that seem “boring” to the uninformed investor…
Companies that rarely get coverage from the mainstream media …
Contrarian investments that are hiding their true potential …
However, if you look below the surface and read between the lines, these “Hidden Yield Stocks” offer intelligent investors the opportunity to deliver 15% total returns per year—no matter what the wider market does.
How?
Well, the answer lies in what I call “The Three Pillars.”
Pillar #1 – Consistent Dividend Hikes
Pillar #2 – Lagging Stock Price
Pillar #3 – Stock Buybacks
Together, these three pillars allow us to identify the stocks that are undervalued … overlooked … recession-resistant … and primed for major growth.
And by investing exclusively in these “Hidden Yield Stocks,” we can enjoy massive upside with very little downside … plus collect regular, reliable income through healthy dividend payouts!
Contrarian Investor
The current yield of NESF, is 14%. Is Mr Market flashing a warning sign, is Mr Market right ?
Sure, chasing high current yields will provide you with instant gratification, but it won’t give you the recession-resistant income … or the 15% year on year returns we want.
Instead, you need to focus on consistent dividend hikes.
In my opinion, selecting companies with a proven track of increasing their dividend payments is one of the safest, most reliable ways to get rich in the stock market. You see, every time a company raises its dividend, you start earning more from your original investment.
For example:
On a $1,000 initial investment, $30 in dividends equals a 3% return. Later, if the dividends go up to $40 a year, you are effectively earning 4% on your initial $1,000 investment.
As this trend continues, you could easily be earning 10%, 15%, even 20% per year just from rising dividends, as your initial investment never changes.
Contrarian Investor
Here’s a deeper look to help you decide: 📈 Current Price & Movement
Price: 60.0 GBp
Change: +0.4 GBp (+0.67%) This modest uptick suggests some short-term stability, but it’s not a strong momentum signal on its own. ☀️ Fund Focus
NESF invests in solar photovoltaic assets, primarily in the UK, with some international exposure.
It targets long-term income generation through government-backed subsidies and power purchase agreements. 💰 Income Potential
NESF is known for high dividend yields, often exceeding 6–7%, making it attractive for income-focused investors.
Dividends are typically paid quarterly, and the fund aims to maintain or grow payouts over time. 🧱 Risk Profile
Interest rate sensitivity: As a yield-focused fund, NESF may face pressure if UK interest rates rise further.
Inflation-linked revenues: Many of its contracts are inflation-linked, offering some protection.
NAV discount: Like many listed infrastructure funds, NESF may trade at a discount to NAV, which can be an opportunity or a red flag depending on market sentiment. 🔍 Considerations Before Buying
Peer comparison: How does NESF stack up against other renewable infrastructure funds like Bluefield Solar (BSIF) or Foresight Solar (FSFL)?
NAV trends and dividend cover: Check recent reports to assess sustainability of payouts.
Market outlook: If you believe in the long-term resilience of UK solar and infrastructure income, NESF could be a compelling hold.
CoPilot
Pillar #1 – Consistent Dividend Hikes
Pillar #2 – Lagging Stock Price
If you include dividends the NAV if flatlining, the worry is that it may eat it’s own tail with the dividend payments.
Dividend:
· Total dividends declared of 2.10p per Ordinary Share for the Q1 period ended 30 June 2025 (30 June 2024: 2.10p), in line with full-year dividend target.
· Full-year dividend target guidance for the year ending 31 March 2026 remains at 8.43p per Ordinary Share (31 March 2025: 8.43p).
· The full year dividend target per Ordinary Share is forecast to be covered in a range of 1.1x – 1.3x by earnings post-debt amortisation.
· Since inception the Company has declared total Ordinary Share dividends of £407m.
· As at 20 August 2025, the Company offers an attractive dividend yield of c.11%
NESF
Pillar #3 – Stock Buybacks
Share Buyback Programme:
· As at 30 June 2025, the Company had purchased 15,621,142 Ordinary Shares for a total consideration of
£11.5m through its up to £20m Share Buyback Programme, producing a total aggregate NAV uplift of 0.5p per Ordinary Share (0.0p during the period). All purchased Ordinary Shares are currently being held in the Company’s treasury account.
Solar investor NextEnergy Solar Fund will leave the 250 index. All changes will take effect from the start of trading on September 22.
IF the dividend isn’t increased or cut and NESF isn’t taken over, you should receive your capital back in around 5 years.
REIT review: REITs catch their breath – but clouds linger over property valuations
Richard Williams
08 October
The average real estate share price was flat in September, a welcome respite after a couple of bruising months of losses, although persistent inflation and high gilt yields continue to cloud the outlook. There were some big winners and losers in the month.
Best performing funds in price terms
(%)
PRS REIT
11.5
Alternative Income REIT
10.4
International Workplace Group
10.3
AEW UK REIT
6.9
Big Yellow Group
6.8
First Property Group
6.8
Custodian Property Income REIT
6.3
Picton Property Income
5.8
Ceiba Investments
5.8
Land Securities
5.1
Source: Bloomberg, Marten & Co
On the positive side, PRS REIT’s (PRSR) shares responded to a proposed sale of the company (although the deal would leave substantial value on the table, being at a 19% discount to NAV). Shares in Alternative Income REIT (AIRE) were also up double digits having fallen considerably over the previous two months weighed down by an impending debt refinancing. New bank facilities were agreed in September at an improved margin, although the overall higher debt costs saw it reduce its dividend target. Serviced office specialist International Workplace Group (IWG) was the other double-digit riser, with its share price rebounding strongly from an irrational 16% one-day drop following the release of half-year results in August.
Worst performing funds in price terms
(%)
Grit Real Estate Income Group
(16.2)
Globalworth Real Estate
(10.5)
Town Centre Securities
(8.3)
Ground Rents Income Fund
(7.1)
Henry Boot
(6.3)
Regional REIT
(4.5)
Life Science REIT
(3.9)
Sirius Real Estate
(3.8)
Macau Property Opportunities
(3.5)
Harworth Group
(3.4)
Source: Bloomberg, Marten & Co
Investors seem to have given up on Grit Real Estate (GR1T) as it grapples with high debt costs, falling property income and challenged investment markets in Africa. With the disappointing news that Life Science REIT (LABS) had been unable to attract a bid for the company on acceptable terms, the share price dwindled as the board proposed that a drawn-out managed wind down was the best option for shareholders. Another notable name on the list was Regional REIT (RGL), which during the month reported another drop in NAV in interim results. The regional office landlord is progressing its strategy to sell non-core assets to reduce debt and invest in upgrading the remaining portfolio.
Valuation moves
Company
Sector
NAV move (%)
Period
Comments
Custodian Property Income REIT
Diversified
0.6
Quarter to 30 June 25
Like-for-like portfolio valuation increase of 0.8% to £614.7m
Schroder European REIT
Europe
(0.2)
Quarter to 30 June 25
Property portfolio valued at €193.9m, unchanged from the prior quarter
Harworth Group
Development
0.8
Half-year to 30 June 25
Investment portfolio continues to grow as industrial developments complete
Real Estate Investors
Diversified
(1.4)
Half-year to 30 June 25
Like-for-like, the portfolio valuation reduced by 0.6% to £119.4m
Phoenix Spree Deutschland
Europe
(1.7)
Half-year to 30 June 25
Portfolio valued at €548.7m, a fall of 0.7% over the period
Social Housing REIT
Residential
(3.5)
Half-year to 30 June 25
Portfolio valued at £611.8m, a 2.3% like-for-like reduction
Regional REIT
Offices
(3.6)
Half-year to 30 June 25
Portfolio valuation of £608.3m, down 2.0% on a like-for-like basis
Life Science REIT
Labs/offices
(10.9)
Half-year to 30 June 25
Value of portfolio fell 6.7% to £360.6m
Supermarket Income REIT
Retail
0.1
Full year to 30 June 25
Portfolio valuation of £1,625m, which increased by 1.9% on a like-for-like basis
Source: Marten & Co
Weak valuations in half-year results followed a slight outward movement in property investment yields across most sectors, with frustrating inflation data resulting in elevated gilt yields. Custodian Property Income REIT (CREI) was boasted by an uplift in the estimated rental value of its industrial portfolio, which makes up 43% of the wider portfolio by income. Social Housing REIT (SOHO) suffered a 20 basis point (the equivalent of 0.2%) yield expansion on its portfolio, mainly due to a group of properties let to troubled tenant My Space – the leases of which the manager is in the process of reassigning to another social housing provider. Supermarket Income REIT’s (SUPR) portfolio value was up almost 2% over 12 months, boosted by its inflation-linked leases to the largest grocery operators in the UK and France.
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by City of London Investment Trust (CTY). 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.
A strong year of stock picking puts CTY well ahead of the benchmark.
Overview
City of London Investment Trust (CTY) aims to deliver income and capital growth. Job Curtis has an impressive tenure of 34 years managing the trust, giving him a depth of experience rarely matched. In particular, the last financial year illustrated the benefits of his active, stock-picking approach. That said, this is a cautious investment strategy that is arguably well suited to extending CTY’s unrivalled 59 year run of progressive dividend increases.
Job seeks to spread risks – both in terms of capital and income generation – across the portfolio. This has protected CTY against many sector-specific issues that have arisen over the years, but also in our view complements Job’s valuation-based investment framework, which favours quality companies, and sometimes has a contrarian tilt towards identifying new ideas. Job aims to balance any lower yielders in the portfolio by also investing in steady, highly resilient dividend payers with strong balance sheets. As we highlight in the Portfolio section, this means that CTY is exposed to a range of different types of companies, with varying growth and income characteristics.
Behind the headline-grabbing Dividend Hero moniker, CTY continues to deliver on a NAV total return basis too. CTY has delivered outperformance of the benchmark over one, three, five and ten years.
CTY’s dividend represents a yield of 4.25%. Whilst the dividend increase last year of 3.4% was a shade behind that of UK CPI at 3.6%, the board has stated that it understands the importance of growing the dividend in real terms through the economic cycle and long term. CTY has delivered real dividend growth over ten and twenty years, as we discuss in the Dividend section.
Analyst’s View
CTY has established itself as the leading trust in the UK Equity Income sector, a result not only of its long history of dividend increases over the past 59 years, but also because it has delivered good total returns to shareholders too. As a result, it has won investors’ confidence over time, issuing shares and growing organically so that it now dominates the UK Equity Income sector in terms of size, meaning good liquidity for investors and low Charges.
CTY’s 2025 dividend equates to a dividend yield of 4.25%. Not only is this attractive in absolute terms, so too is the fact that shareholders can derive an element of reassurance that comes with knowing CTY has a 59-year track record of delivering consecutive annual dividend increases. However, this is no UK domestic play – the majority of CTY’s portfolio revenues are derived overseas. Job sees the UK equities he owns as ‘global growth at a discount’. Job expects takeovers of UK companies to continue, highlighting the value available in the UK market.
CTY also provides reassurance in another way – the share price has tended to move in a relatively narrow band with regard to the NAV. As we discuss in the Discount section, a subtle change in wording means the board has underlined its commitment to try to protect shareholders from the discount widening out. As well as its other attractions, the tight discount has been fundamental to allowing CTY to grow organically in the past through share issuance. With this move, shareholders can continue to have confidence in continued good liquidity, and that the share price should follow the NAV. In our view, CTY appears well placed to continue its leadership within the UK Equity Income sector.
Bull
Very low OCF of 0.36%
Consistency and experience of manager who has delivered long-term outperformance of the FTSE All-Share Index in capital and income terms
Track record of 59 years of progressive dividend increases
Bear
Cautious approach means that NAV can underperform in some market conditions
Income track record highly attractive, so manager might risk long-term capital growth in trying to maintain it
Structural gearing can exacerbate the downside
Portfolio
CTY’s investment objective is closely reflected by the investment process and attitude to risk of the managers, Job Curtis and David Smith. CTY is set up to deliver long term capital growth, and equally long-term growth in dividends. Now in his 35th year of managing CTY, Job has decades of experience to look back on to inform his investment decisions. Fundamentally, this is an active stock-picking approach, and Job has plenty of latitude to pick UK stocks across the market-capitalisation spectrum, as well as up to 20% overseas, in order to deliver on the trust’s objectives. As we discuss in the Performance section, Job and, since 2021, David, as deputy fund manager, have a good track record in delivering over and above the benchmark returns, whilst also building on CTY’s unrivalled 59 years of dividend growth. In particular, the last financial year to 30/06/25 (which CTY has recently reported on) saw Job and David deliver significant outperformance of the benchmark, largely driven by stock picking.
Job’s active approach is set within his philosophy, which sees him aiming to spread risks – both in terms of capital and income generation – across the portfolio. This has protected CTY against many sector-specific issues that have arisen over the years, but also in our view complements Job’s valuation-based investment framework, which favours quality companies, and sometimes has a contrarian tilt towards identifying new ideas. Of course, the prospective dividend yield and growth of that dividend is a key determinant for Job when selecting investments. Holding a company that doesn’t pay a dividend is relatively rare, but Job does hold a number of companies that pay a relatively low dividend yield but, in his view, have strong or resilient growth characteristics. Job aims to balance any lower yielders by also investing in steady, highly resilient dividend payers with strong balance sheets.
The managers break down the portfolio into companies with different features, which we show in the graph below, once again illustrating the fact that CTY is exposed to a range of different types of companies, with varying growth and income characteristics.
PORTFOLIO OVERVIEW
Source: Janus Henderson
Over the last few years, the number of individual stocks has been gently reducing (numbering 77 as at 31/08/25), with a greater proportion of stocks featuring from the FTSE 100. This is largely a result of valuations in the UK being at such a discount to international peers, which means that Job’s exposure to overseas stocks is relatively low by historical standards at c. 8% currently (a maximum of 20% is allowed). Job and David sit within Janus Henderson’s global equity income team, which, amongst other advantages, helps give them an understanding of relative valuations on an international basis. That said, far from being exposed to the UK domestic economy, the majority of CTY’s portfolio revenues are derived overseas. Job sees the UK equities he owns as ‘global growth at a discount’. Job expects takeovers of UK companies to continue, highlighting the value available in the UK market.
Job’s fundamental approach to stock picking has seen CTY benefit from the significant recovery in many UK bank share prices. Job has been focussed on the domestic deposit takers such as NatWest, Lloyds and Barclays. NatWest in particular has been a very strong contributor to returns, Job having recognised well before the wider market that it would have a very strong tailwind to returns from hedges taken out during the period of low interest rates rolling over at much higher interest rates. Away from the biggest stocks in the UK market, Job and David have also been active. An example is recent purchase and mid-cap stock TP ICAP, which is the world’s largest inter-dealer broker between investment banks on many products. Job and the team like the fact this world class group converts a high percentage of its profits into cash and is expected to be a good dividend payer. Harbour Energy is a small-cap, also recently purchased, which has increasingly diversified oil and gas production, with around one third in Norway, one third in the UK and one third spread across the rest of the world (including Latin America, North Africa and Germany). The team believe it has plenty of growth ahead of it, being a relatively nimble, independent energy company.
One to consider, the next time the market shakes out.
Dirt-Cheap Dividends of Up to 9.7%? In This Market?
Brett Owens, Chief Investment Strategist Updated: October 10, 2025
Closed-end funds (CEFs) are the last bargains left on the board. CEFs are often confused with mutual funds and ETFs, but they are different because they often trade at discounts to their net asset values (NAVs).
For contrarians like us looking for deals, this is key.
CEF trading is relatively thin. This created inefficiencies, such as select CEFs trading for as cheap as 95 or even 90 cents on the dollar.
Plus, some of them dish big dividends—like these five.
Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) Distribution Rate: 8.1%
Let’s start with the Eaton Vance Tax-Advantaged Dividend Income Fund (EVT)—a CEF that buys not just common stocks, but also preferred stocks, that distribute qualified dividends. Qualified dividends are taxed at the more favorable long-term capital gains tax rates; non-qualified dividends, like those paid by most real estate investment trusts (REITs), face less favorable short-term capital gains rates.
EVT’s four managers currently hold an 80/20 blend of common and preferred stocks, with the traditional equity “sleeve” made up of about 80 predominantly large-cap stocks. Names like JPMorgan Chase (JPM), Abbott Laboratories (ABT) and NextEra Energy (NEE) would be right at home in a bog-standard dividend fund.
But while that fund would likely pay 2% or so, EVT delivers 4x that number, at 8% currently. (And it’s a monthly dividend payer, no less.)
Part of that high yield we can chalk up to leverage—management borrows additional funds to invest even more money in their picks, which amplifies yields and gains if we’re fortunate, and amplifies losses if we’re not. Leverage currently sits at about 20% of assets.
But the other part of it is the nature of those distributions. When Eaton Vance’s fund sends out a monthly distribution, dividend income is only a (small) portion of that. The rest is capital gains, usually of the long-term variety. It’s a “managed” distribution, too—the typical dividend fund’s income will vary from one period to the next, but EVT’s monthly payout hasn’t changed since April 2024, when the CEF raised its distribution by about 11%.
The strategy doesn’t give us much of an edge over basic dividend funds, however—at least not longer-term.
EVT’s Leveraged Nature Is Good for Quicker Bouts of Outperformance
Right now, valuation is on EVT’s side, as the fund trades at a roughly 8% discount to NAV that’s wider than its longer-term 5% average.
Options strategies are popular in CEFLand. Sometimes they’re complementary to the primary strategy, but sometimes they’re the whole point.
The latter is the case with the Eaton Vance Tax-Managed Buy-Write Opportunities (ETV). It holds a portfolio of 150, mostly large-cap stocks like Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL), then sells covered calls on a few major market indexes like the S&P 500 and Nasdaq Composite to generate income, which it distributes to its shareholders monthly.
Funds that sell covered calls—especially those where the strategy revolves around it—are designed to limit downside and provide income.
Covered Calls Cap Our Upside—But Limit Our Downside Too
On that front, actively managed covered-call strategies like ETV are better than comparable plain-vanilla index ETFs.
Better still? We can sometimes buy that protection on the cheap; while ETV tends to trade on par with its NAV, we can buy the fund and its monthly distributions at 94 cents on the dollar.
BlackRock Enhanced Global Dividend Trust (BOE) Distribution Rate: 8.4%
BlackRock Enhanced Global Dividend Trust (BOE) is like a mix of ETV and EVT, with global exposure (read: U.S. and international stocks) mixed in.
Management has built a roughly 50-stock portfolio that’s currently split 65/35 across U.S. and international stocks, but that blend can and will change over time. When I’ve looked at this fund in past years, I’ve seen it hold as much as half of assets in international stocks, which is higher than the typical global fund.
But like ETV and EVT, everything revolves around blue chips. It holds U.S. mega-caps like Microsoft and Broadcom (AVGO), but also developed-market names like AstraZeneca (AZN) and even emerging-market giants like Taiwan Semiconductor (TSM) and Alibaba (BABA).
International stocks might pay more than domestics, but BOE still yields roughly 3x more than most global ETFs. It’s not leverage, which is vanishingly thin, but a covered call strategy—one that helps fund a monthly distribution north of 8%.
We’re not expecting to outperform a basic index over time, but we do expect less volatility and smaller drawdowns.
On That Front, BOE Is OK, But Hardly Great
An 8.7% discount to NAV would seem to give us an edge right now, but it’s a shallower markdown than its longer-term 11% average.
BlackRock Resources & Commodities Strategy Trust (BCX) Distribution Rate: 8.1%
Many sector ETFs and mutual funds are usually faithful to one slice of the market. We buy technology funds for technology stocks, and bank funds for bank stocks.
But CEFs like the BlackRock Resources & Commodities Strategy Trust (BCX) aren’t afraid to “cross the streams.”
BCX primarily invests in stocks “issued by commodity or natural resources companies,” meaning that the portfolio straddles the energy and materials sectors. The management team has assembled a tight portfolio of just 45 companies including integrated energy majors like Shell (SHEL) and Exxon Mobil (XOM), but also metals and minerals specialists like Wheaton Precious Metals (WPM) and Freeport McMoRan (FCX). The fund also may invest in derivatives, and it also sells covered calls to enhance its dividend yield.
The result?
Sometimes, BCX Gives Us the Best of Both Worlds
It’s not always that way. Longer-term, BCX has struggled to capture some of the biggest moves in metals, at least in part because of its covered-call strategy.
Like with many CEFs, the best chance for success is buying while the fund is cheap. We can currently buy BlackRock’s fund for a 6% discount, but it’s not really a deal compared to its long-term average discount of 10%.
ClearBridge Energy Midstream Opportunity Fund (EMO) Distribution Rate: 9.7%
We get a more targeted energy play (and the highest yield of the bunch, at nearly 10%) from the ClearBridge Energy Midstream Opportunity Fund (EMO).
Co-Managers Peter Vanderlee and Patrick McElroy own just 20 companies. But it’s a who’s who of midstream companies (firms that operate pipelines, storage, terminals and other energy assets), including regular stocks such as Targa Resources (TRGP) and ONEOK (OKE), as well as master limited partnerships (MLPs) such as Energy Transfer LP (ET) and Enterprise Products Partners LP (EPD).
Unlike with the other CEFs mentioned above, EMO’s holdings do a lot of the talking as it pertains to the monthly distribution. MLPs are among some of the highest-yielding securities in the stock market. But the fund still pays more than most MLP ETFs thanks to high leverage of nearly 30%.
EMO trails its benchmark, the Alerian MLP Index—represented in the chart below by the Alerian MLP ETF (AMLP)—by 30 percentage points since inception in 2011. But since 2023 EMO has nearly doubled the return of AMLP, thanks to its aggressive leverage.
EMO Outperforms in an Energy Bull Market
EMO has the deepest discount on this list—we currently can buy shares at 91 cents on the dollar. But thanks to its hot performance, it’s actually expensive in historical terms, trading well above its longer-term 15% average discount.
A Fully Paid Retirement on Just $500,000?!
Some of these CEFs aren’t as cheap as we might like, but they have two vital components we need if we plan to retire on income checks alone: 1.) yields of 8%+, and 2.) monthly distributions.
A $500,000 nest egg could earn $40,000—depending on where you live, that could be enough for a fully paid retirement on its own.
You could generate a $60,000 annual dividend “salary” from a $750,000 nest egg.
And if you have managed to stow away a cool million bucks to work with, the 8% Monthly Payer Portfolio could pay you an equally cool $80,000 in dividend income every year.
But what makes this portfolio really sing is the monthly frequency of dividends. That means we’re getting paid every bit as frequently as we’re paying the bills.
No complex accounting from one month to the next. No dividend “ladders.” Just money in our accounts every 30 days or so.
It’s like getting a regular salary—without the job!
Is 4.7% the new magic number for sustainable pension withdrawals?
Our 150th episode tackles the dilemma retirees face over how much money to take out of their pensions, while trying to ensure their lifetime savings last as long as they do.
Our latest episode – our 150th – tackles the dilemma retirees face over how much money to take out of their pensions, while trying to ensure their lifetime savings last as long as they do. The famous strategy is the 4% rule, which has recently been renamed the 4.7% rule. To explain all you need to know about this rule, including why it has its critics, Kyle is joined by interactive investor’s personal finance editor Craig Rickman. The duo also run through some tactics on how to approach investing pensions in retirement.
For those who would like to see a video version of the podcast, you can now watch us on YouTube. Or if you would prefer to listen, you can do so in all the usual places.
Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to On The Money, a weekly show that aims to help you make the most out of your savings and investments.
In this episode, we’re going to be covering how retirees can approach taking money out of their pensions while ensuring that their pension pots last as long as they do.
The strategy that’s become very famous is the 4% rule, which may now be rebranded the 4.7% rule, which we’ll talk about in this podcast.
The theory is that if you start off with 4%, or maybe now 4.7%, you take that out at the start retirement and then increase withdrawals each year in line with inflation. Then your investments can, in theory, stay the course for 30 years, and those withdrawals continue irrespective of how stock markets behave.
Joining me to discuss this topic is friend of the podcast, Craig Rickman, personal finance editor at interactive investor.
Kyle Caldwell: You’ve been on the podcast quite a few times. What’s different this time?
Craig Rickman: I can’t think of anything. Is that a new jumper you’re wearing?
Kyle Caldwell: It is a new jumper, but we’re also now filming the podcast. Each episode from now on, there’ll be a video version on YouTube. That’s in response to feedback we’ve had. Some listeners got in touch to say that they would like to see a video version. So, we’re going to accommodate that going forward.
But what’s not changing is that you’ll still be able to listen to us on your preferred podcast app or through www.ii.co.uk. The podcast will still be published every Thursday, and the topics that we cover will still be related to investments and pensions, as they have been for 150 episodes. Each episode gets under the bonnet of a particular topic or theme, and we discuss it for around 20 to 25 minutes.
Ultimately, we’re here to serve listeners. We’re trying to help investors make more informed investment decisions and to hopefully learn a thing or two from our podcast.
So, Craig, let’s now get on to this episode’s topic. So, the 4% rule, or maybe now it’s the 4.7% rule. Let’s take a step back. Could you explain where this rule came from and what it’s based on?
Craig Rickman: It was devised by a US financial planner, Bill Bengen, in 1994. He calculated that if you were to withdraw 4% of your portfolio every year, adjusted annually by inflation, your money should last at least 30 years, [which for] most people would span their retirement, I guess, unless you retire particularly early, or you live for a particularly long time.
So, this was based on a portfolio comprising 50% equities and 50% bonds, a balanced portfolio, I guess, leaning more towards the cautious side. It was modelled on market performance over 30-year rolling periods from 1926.
And, like you say, since then, it’s become a widely used rule for retirees and for financial planners.
Kyle Caldwell: It’s a worst-case scenario, isn’t it? The 4% rule, or maybe it’s now 4.7%, which we’ll come on to. It assumes that you take capital out of the pension in terms of the total returns rather than it being based on, say, a natural income approach?
Craig Rickman: That’s right. Yeah, it’s deemed a safe withdrawal rate. I think that’s something that it’s also known as. So, yeah, looking at a total return approach, and it doesn’t take account of adjusting withdrawals in light of changing market conditions.
Kyle Caldwell: I’ve seen comparisons made over the years between this rule and the potential retains you can get from annuities. For me, though, there’s risks that you’re comparing apples with pears. Could you go into a bit more detail about why that’s the case, Craig?
Craig Rickman: I can, yeah. So, often when comparisons are made between the 4% rule and annuities, it’s based on a level annuity. So, if you buy an annuity, which is a guaranteed income for life, essentially, you swap your pension savings for that feature.
You’ve got various options that you can choose. So, you can choose just to have an annuity, the income paid for just your life. You can have the money passed to a spouse. If you were to die, you can choose guaranteed periods. You can choose to have it uprated every year. But each feature that you build on, reduces the amount of annuity rate that’s payable.
The danger with comparing the 4% rule with a level annuity is that it doesn’t take account for the fact that the 4% rule has increasing income every year. So, it’s designed to increase in line with inflation. So, that’s the apples and pears element.
If you were to buy a level annuity right now, let’s say you’re 65 years old, you could probably get somewhere not far away from 8% a year. If you wanted an escalating annuity, so one that keeps pace with inflation, that income would drop down, initially, to be just over 5%. So, there’s quite a big difference there.
But there are other obviously other problems with comparing annuities with the 4% rule. With the 4% rule, you’re keeping your money invested, so you still have flexibility over withdrawals. There is the possibility of leaving a legacy for someone. Obviously, if that money passes to someone other than a spouse or civil partner and you pass away after April 2027, there could be some inheritance tax to pay.
But still, there is the facility to do that, and you get more flexibility with drawdown.
So, although you can kind of understand that comparisons are made, and the comparisons will always be made, but when you’re looking at income drawdown annuities, you do have to be a bit careful about how you do it.
Kyle Caldwell: For me, with annuities, the thing to bear in mind is that it’s an irreversible decision. Once you take out an annuity, you can’t change your mind.
The fact is that as you get older, you do tend to get better rates with annuities. So, I think it’s just weighing everything up, and potentially mixing and matching works for some people, but also waiting that bit longer as well to get that extra level of income.
Craig Rickman: Yeah. An approach that some people take is to use drawdown in the early stages and then move to an annuity as they get older. But I guess the good thing with it is that you get to choose the way that you want to do it.
Kyle Caldwell: Let’s now get to the 4% rule and whether it’s being rebranded as ‘the 4.7% rule’. The reason why is because the author of the research, William Bengen, has written a new book. It’s called A Richer Retirement: supercharging the 4% rule to spend more and enjoy more.
So, essentially, Bengen has carried out new research, and upped the number of asset classes he based his research on from two to seven. In a nutshell, he says that if you have a more diversified portfolio, you can do a lot better, and you can start off with 4.7%.
I’ve seen that he said the average that someone could start off with is more like 7%, but at 7%, it’s a 50:50 chance whether your retirement pot will last 30 years.
What are your thoughts, Craig, on Bengen’s updated research?
Craig Rickman: One of the interesting things is that in 2021, Morningstar did their own examination of the 4% rule and they actually reduced it. They pared it back to 3.3%. It illustrates that any kind of fixed withdrawal rate in retirement should only ever serve as a guide.
Clearly, Bengen’s update, it was 30 years [when] he did the original analysis and his update, as you say, is based on a wider spread of assets. So that’s one element.
I guess the other thing is other aspects like economic conditions and the outlook for markets for inflation, those things can change as well.
So, I think my view is that it’s a starting point for most people. But it’s really important to not only personalise your withdrawals in drawdown, but also review them regularly, to fit with the things that you want to achieve as an individual, plus taking into account what’s going on economically as well.
Kyle Caldwell: You’ve just mentioned, Craig, a couple of potential flaws in the 4% rule. It does have its critics, and you’ve just mentioned one criticism is that no one knows what investment returns or the inflation rates will be in the future.
Other commentators have pointed out that one thing to bear in mind for UK savers and investors is that the research is based on the performance of the US stock market and US bonds. Over the very long term, the US stock market has done better than the UK stock market, so that might actually flatter the level of safe withdrawal rate that Bengen has come up with.
It also doesn’t take into account fees, which is the only thing that investors can control at the outset, and it also assumes 30 years of withdrawals. Of course, some people live longer than that and have longer periods in retirement than 30 years.
And as you touched on, Craig, it’s not personalised.
Craig Rickman: Yeah. One of the other things it doesn’t take into account is tax. And we know that managing tax bills in retirement is really important. You know, the saga that’s been going on around tax-free cash illustrates the value that investors put on that element.
So, managing tax bills in retirement is really important, but the Bengen rule doesn’t take account of that. So, if you’re making withdrawals from income drawdown other than the the tax-free element, then that is added to your income tax bill and taxed at whatever rates or whatever tax band, whether it’s 20%, 40%, or 45%, that it falls into.
However, if you’re taking income from an ISA, then you get to keep the lot. So, there’s that consideration as well. But going back to the personalisation element, that’s the thing for everyone.
Everyone who is in retirement has their own set of unique circumstances, and that goes back to the points earlier around annuities and drawdown, and the decisions that people make and how they arrive at them. But it’s about finding out the right thing for you.
For some people, drawing 4% every year, uprated annually by inflation, might be the right thing to do. But for others, they might want to take a bit more, might want to take a bit less. It depends on your personal circumstances, attitude to risk, capacity to bear losses, and maybe other income sources as well. So, there’s quite a lot to consider when choosing what rate of income you want to draw from your investment portfolio.
Kyle Caldwell: As I mentioned at the start of the podcast, the theory is that you continue to take a level of income that goes up with inflation, starting off with 4% or 4.7% now, irrespective of how your investments perform.
However, you don’t have to follow that to the letter. You could, in theory, make adjustments. You could take more in good years, take less in bad years. But, Craig, in a former life, you were a financial adviser. How difficult is that for someone to do in practical terms?
Craig Rickman: It depends how reliant you are on that portion of income. If you’re heavily reliant on that income in retirement, so let’s say you get the state pension and you use the rest in drawdown and you need a certain amount every year to live the lifestyle that you want, then it’s going to be very difficult to take a lower withdrawal rate. That’s because then you have to consider what you’re going to give up during those years. What aren’t you going to be able to do?
It might be slightly easier for those who have more guaranteed income sources. So, let’s say they’ve got some defined benefit pension, maybe they bought an annuity with a portion of their pension pot, then the facility to have that flexibility to adjust withdrawals, that might be more of an option to them.
So, again, it falls back to your personal circumstances. But, yeah, for some people it’s just not that simple, is it? It’s not as simple as just saying, ‘Well, I’m just going to take less’.
Kyle Caldwell: Although we don’t know how investments will perform in the future, I think it’s fair to say that 4.7% a year, it’s not too onerous a challenge. It’s not saying it’s got to be 10%. I mean, that would be a very, very hard thing to pull off.
But even after fees, the long-term average return of UK shares based on 100 years of historical data, which Barclays publish, I think it’s about 5.5% a year in real terms, UK shares return. So, for me, it is challenging, but I don’t think it’s a really difficult challenge to achieve.
Craig Rickman: No. As many people have been saying for years, 4% is cautious, it’s not overly aggressive in any sense of the word when it comes to drawing a retirement income.
With 4.7%, if we take into account Bengen’s updated rule, it’s a bit more aggressive. It means that your investments will have to perform a bit better than they would have done otherwise. But still, exactly like you say, we’re not [suggesting] that you need these sort of outsized returns to make your money last. So, it still seems palatable.
Kyle Caldwell: In terms of what people are actually doing [when it comes to] how much they have withdrawn from their pensions, what does the data tell us, Craig?
Craig Rickman: Well, I’ve got some numbers here. This is from the Financial Conduct Authority’s most recent retirement income data, and this looks at regular withdrawal rates based on pot size during the 2024-25 tax years, so the previous tax year.
So, let’s have a look at what people have been doing with pots that are £250,000 or more. So, the two most popular groups of withdrawal rates, number one is taking between 2% and 3.99% a year. The second-most popular is less than 2% a year.
Might as well cover the third. So, the third-most popular is between 4% and 5.99% a year. So, you can see some correlation with the Bengen rule, perhaps.
These figures don’t tell the full story because they only look at individual pot sizes and not at what individuals are doing as a whole. So, it’s possible that someone could have some smaller pension pots as well that they’re taking bigger withdrawals from, and so it could be distorting the figures because it’s only looking at individual pots.
But it certainly gives us some clues on what people are doing, and by and large, people with bigger pots are tending to be reasonably cautious with their withdrawals.
Kyle Caldwell: It also reflects the very start of retirements. People don’t want to get off to a bad start. Bengen’s research does indeed show that the first decade is very important. If you retire into a bear market, for example, so, say, your investments fall by 20%, then you’re going to need a 25% gain to get back to where you were. It’s pound-cost averaging in reverse. It’s called pound-cost ravaging.
Could you explain that a bit more, Craig?
Because if you get off to a bad start, and that could involve markets performing poorly or your withdrawals are overly aggressive, that can have an enormous impact on ultimately how long your money lasts.
One of the key risks, as you mentioned, is pound-cost ravaging, and that’s most acute in the early years of retirement. Essentially, if you continue to take withdrawals from equities during periods where markets are falling, that can affect how long your money can last.
So, if we look at a very simple example. Let’s say you had a pot of £250,000 and you’re drawing 4% a year, which is £10,000. There’s a market slump, and the value of that drops to £200,000, and you still continue to take £10,000. Now your rate of withdrawal, even though in monetary terms, it’s the same, has jumped up to 5% a year. And the bigger percentage that you’re taking out of your pension, the harder it has to work to last as long as you do.
So, yeah, it’s really, really important to think about how to manage your pension withdrawals, and this goes back to that personalisation thing, how to make it specific for you, and also take account of what’s going on economically as well.
Kyle Caldwell: So, essentially, Craig, if your investments plummet, but you then decide, actually, I’ll take less, I’ll withdraw less, then you’re giving your investments greater opportunity to recover their poise over time?
Craig Rickman: That’s right. Yeah. The other option is to pause withdrawals from shares completely.
Kyle Caldwell: In terms of how you set up a portfolio, there are certain types of funds that fit the defensive description. One of those is money market funds. So, these offer a cash-like return. They invest in very low-risk bonds that have very short-term lifespans. At the moment, the yields that you can get off money market funds are around 4%.
These funds will typically yield whatever the Bank of England base rate is, give or take.
Other defensive options include wealth preservation trusts. I’ve spoken a lot about these over the years, including on the podcast. So, there’s a small number of investment trusts that invest in a very cautious manner. They have a lot of defensive armoury. They’ll invest in low-risk bonds, and have some exposure to gold. They’ll have around a third in shares, so that’s not much compared to the typical portfolio.
If you look at the historic performance of all three, when stock markets have plummeted, they’ve held up very well in terms of their overall total retains. They’ve managed to protect capital and they’ve done their job as defenders in a well-diversified portfolio.
You’ll find other cautious funds in the Mixed Investment 0-35% Shares Sector and in the Mixed Investment 20-60% Shares Sector. So, those are the sorts of investments, as well as bonds, that should be considered as a defensive part of a portfolio.
I’ve mentioned money market funds, Craig, which are a cash-like type of investments, but cash can also be utilised as part of a diversified portfolio as well.
I’ve seen you write about this cash pot trick. Could you talk us through this? My understanding is that you put a certain level of income in cash that you can then dip into when stock markets have a lean period.
Craig Rickman: Yeah. Sure. So, like I was saying earlier, if stock markets have fallen, your portfolio has fallen in value, and one way [to deal with it is] to reduce the amount of income you take, or you could just pause withdrawals completely to give your pot the best chance of recovering quickly.
One way to do this is to have a cash buffer. It can be within your pension, but it could be outside as well. The idea is to keep roughly two to three years’ expenditure in cash, so that should a market slump arrive, you can pause withdrawals from the equity portion of your retirement portfolio, dip into your cash, and that should offer some protection.
And, again, give your money a better chance of recovering quickly because you’re not drawing money out. That should give you a better chance of your retirement portfolio recovering more quickly because you’re not drawing money out when stock prices are low. So, it can be an effective way to do things.
One thing to remember when keeping a cash pot is that if you deplete it for any reason, remember to top it back up again, so that you’re protected should further market falls arrive in the future.
Kyle Caldwell: The other strategy that I often see cited is the natural yield approach. This is where you have a portfolio that’s predominantly focused on income-producing investments, so whatever the underlying income generated from the portfolio is, whatever that is each year, that’s the amount that you take. Because if you do this, then you’re not harming the capital growth of the portfolio.
Craig Rickman:In an ideal world, that’s what people would use if [they] could because what most people are looking for is a way to generate a regular income in retirement and preserve their capital.
One of the problems with the natural yield approach is the lack of certainty of income. So, if the companies that you’re investing in, or the investment trusts, are paying good dividends now, there’s no guarantee that those yields will continue. I mean, you hope so, but you don’t know.
But still, it might be suitable for those who aren’t relying on that portion of their income. So, to go back to what we were saying earlier around people with different circumstances. Unless you are heavily reliant on that income, then that can be a good approach.
Kyle Caldwell: In terms of trying to generate a consistent level of income growth at retirement, obviously there’s no guarantee, but I think the investment trust structure is better suited rather than open-ended funds.
This is because with investment trusts, they can squirrel 15% of income generated each year away – that’s income generated from the underlying investments. Then, if stock markets have a rocky patch, and there’s less dividend income being produced, then investment trusts can dip into those reserves and maintain or increase their dividend payouts during lean periods.
So, they’re called investment trust ‘dividend heroes’, and 20 have increased their dividends for more than 20 years, and 10 have increased their dividends for more than 50 years.
Of course, there’s no guarantee that these dividend streaks will continue, but because of the structure, there’s more chance of them continuing than with an open-ended fund.
With an open-ended fund, all the income that’s generated each year is returned to investors – they can’t hold anything back. So, if there’s less income coming in, then they’ll be paying less income over time.
The final point I wanted to make, Craig, is something that I spoke about earlier about how you can have a defensive buffer in the portfolio in terms of targeting certain types of funds or investment trusts that invest in a defensive manner, but there’s also a danger of being a bit too cautious, of being a bit too defensive.
Because, at the end of the day, you want your retirement pot to last. You want it to grow. It could be a 30-year or more time horizon. So, it’s very important that you also have enough exposure to growth-producing assets as well.
Craig Rickman: Yeah. The first thing to say around that is attitude to risk is very much a personal thing, and it will depend on how much risk you are comfortable taking and also the levels of losses that you have the capacity to bear.
But the other side to that is, if you’re looking to take an income in retirement and you want that income to be increasing every year with inflation, using something like the Bengen rule, whether it’s 4% or 4.7%, then you’re going to need your portfolio to grow.
Growth is going to be really important. So, it’s having a combination of your money growing, that you can then take rising income from.
So, yeah, 50% equities would be sort of the middle to the more cautious side of things. There are many people out there who will be comfortable with taking more risk than that.
So, yeah, again, it’s a personal thing, but it’s really important that your retirement portfolio is geared up to grow.
