Revealed: the investment trusts yielding 4.5% or more

 Thursday, October 24

AJ Bell

A central bank interest rate cutting cycle is well underway, the Federal Reserve having slashed US rates by 50 basis points and further cuts expected from the Bank of England following August’s 25 basis point reduction. Falling rates mean lower rates on cash and bonds, so investors searching for long-term income and capital growth may feel compelled to research the market for alternative opportunities.

Helpfully, The Association of Investment Companies (AIC) has published a comprehensive list of the 26 investment trusts that invest in equities and offer a yield of at least 4.5%. Nearly all of these trusts, 23 out of 26 to be precise, currently trade at a discount to NAV (net asset value), while over half (15) sell on a double-digit discount to their underlying assets.

High income from HFEL

A total of 18 trusts yields 5% or more, while a further eight offer yields of between 4.5% and 5%. Of the aforementioned 26 trusts, the highest yielding is Henderson Far East Income (HFEL) at 10.3%. Managed by Janus Henderson Investors’ Sat Duhra, the trust aims to provide a growing annual dividend and capital appreciation from a diversified book of Asia-Pacific-based firms, with top 10 holdings including from world’s biggest memory chips and smartphone maker Samsung Electronics and the globe’s largest contract chip manufacturer, TSMC.

Henderson Far East Income is one of the AIC’s ‘next generation’ dividend heroes – trusts that have increased the dividend for 10 or more years in a row but fewer than the 20 required for ‘dividend hero’ status – having hiked the shareholder reward for 16 consecutive years. The board has an increased willingness to dip into the trust’s revenue reserves to support future payments. Duhra has reduced the trust’s exposure to China, which drove underperformance in full year 2023, and increased positions in India and Indonesia.

Also trading at a premium, and offering a 7.4% yield, is Chelverton UK Dividend Trust, which has outperformed Henderson Far East Income on a 10-year share price total return basis, having generated 85.4% versus the latter’s 50.5% haul.

Steered by David Horner and Oliver Knott, Chelverton UK Dividend aims to deliver a high and growing income by investing in mid and small caps outside the FTSE 100 and returned to a position where the dividend is being paid entirely from the current year revenue surplus after costs. In the future, the board plans to increase dividends by a level in excess of prevailing inflation and use any surplus to replenish the trust’s revenue reserves.

Company	AIC Sector	Yield (%)	Discount/premium (%)	10-year share price total return (%)
British & American	Global Equity Income	8.5	−34.8	-36.6
Marwyn Value Investors	UK Smaller Companies	9.9	−51.3	-30
Premier Miton Global Renewables	Infrastructure Securities	6.9	−16.0	14.8
Blackrock Latin American	Latin America	7.1	−14.2	16.3
UIL	Flexible Investment	8.1	−34.9	38
abrdn Equity Income	UK Equity Income	7.2	−4.6	38.7
Henderson Far East Income	Asia Pacific Equity Income	10.3	2.4	50.5
CT Global Managed Portfolio Income	Flexible Investment	6.4	0.6	56.3
CT UK High Income	UK Equity Income	6.4	−11.2	62.3
Henderson High Income	UK Equity & Bond Income	6.3	−8.2	72.5
Shires Income	UK Equity Income	5.8	−8.2	76.4
European Assets Trust	European Smaller Companies	6.8	−13.0	79.5
Chelverton UK Dividend Trust	UK Equity Income	7.4	2.8	85.4
Blackrock World Mining	Commodities & Natural Resources	6.1	−6.0	128
Lindsell Train	Global	6.7	−20.7	179.5

Table: Shares magazine. Source: AIC/Morningstar (to 27 September 2024)

Help from the heroes

Almost a quarter of the highest yielding investment trusts are fully fledged AIC dividend heroes with at least 20 years of unbroken dividend growth under their belts. They include City of London, the UK Equity Income sector stalwart offering a gateway to large international companies. City of London has achieved 58 years of consecutive dividend hikes, the longest streak amongst the dividend heroes, and upped its year-to-June 2024 payout by 2.5% to 20.6p, ahead of UK CPI (consumer price index) inflation, while revenue reserves increased by 5.8% to 9.4p.

With more than half a century of dividend increases to its name is JPMorgan Claverhouse, on 51 years of undisturbed payout growth, while the Simon Gergel-managed Merchants has notched up over four decades of unbroken dividend growth. Sue Noffke-steered Schroder Income Growth Fund and the Manny Pohl-managed Athelney Trust sit on 29 years and 21 years respectively.

The highest yielding dividend hero is abrdn Equity Income Trust, which offers a 7.2% yield and a dividend which it has increased for 23 years on the spin. While manager Thomas Moore has been finding a number of opportunities across the UK stock market of late, NAV performance has lagged the FTSE All-Share index over the past five years, with factors such as a greater allocation to mid-caps than peers at play.

Going global for income

While 11 of the 26 trusts yielding at least 4.5% emanate from the AIC’s UK Equity Income sector, there are two trusts from each of the following sectors – UK Smaller Companies (Marwyn Value Investors, Athelney), Flexible Investment (UIL and CT Global Managed Portfolio Income) and Asia Pacific Equity Income (Henderson Far East Income and abrdn Asian Income Fund).

Income seekers can also gain exposure to high-yielding trusts targeting other key regions of the globe. BlackRock Latin American offers a 7.1% yield, but this reflects a poor 10-year share price total return of 16.3% delivered in what remains a volatile region, while European Assets is focused on the earnings and dividend growth potential of continental small caps.

Elsewhere, trading on a 5.3% yield is abrdn Asian Income Fund, which offers a diversified entrée into Asia. Canadian Income is an AIC North America sector constituent trading on a double-digit NAV discount with a 4.5% yield.

Disclaimer: These articles are for information purposes only and are not a personal recommendation or advice. The value of your investments can go down as well as up and you may get back less than you originally invested.

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If u want to own any of the above Trusts that yield less than 7% but knowing that a yield of 7% doubles your hard earned in ten years, u may have to pair trade your choice with a higher yielder by splitting your investment.