Triple whammy: Equity trusts with a high yield, wide discount and strong performance

The International Biotechnology Trust ticks all three boxes.

By Emma Wallis

News editor, Trustnet

  

Investors who want to grow their capital and simultaneously earn an income often opt for equity income funds but some investment trusts offer a compelling alternative.

Not only do many trusts have a yield above 4% but several of them are trading at wide discounts to their net asset value (NAV), offering investors the chance to snap up a portfolio of stocks on the cheap.

To avoid value traps and poor performers, Trustnet scrutinised the total returns of trusts on double-digit discounts with yields above 4% to find those with the strongest track records.

The International Biotechnology Trust ticked all three boxes comprehensively. It has a 4.4% yield and a 12% discount, according to data from the Association of Investment Companies (AIC), and has beaten its benchmark and sector over one, three, five and 10 years to 18 March 2025.

The current managers, Ailsa Craig and Marek Poszepczynski, have only been in charge since March 2021, so are responsible for four years of the trust’s track record.

It is the best-performing trust in the seven-strong IT Biotechnology & Healthcare sector over the past 12 months and second over three and five years.

Performance of trust vs benchmark & sector over 5yrs

Source: FE Analytics

The trust has a policy of making dividend payments equivalent to 4% of its net asset value at the end of the preceding financial year, through two equal semi-annual distributions.

Shareholders include the MIGO Opportunities Trust, managed by Charlotte Cuthbertson and Nick Greenwood at Asset Value Investors, and the CT Global Managed Portfolio Trust, led by Columbia Threadneedle Investments’ Peter Hewitt, who holds it within his income portfolio.

Cuthbertson said: “In a sector known for its volatility, Craig’s expertise and resilience particularly shines. Her biological insight and investment acumen, alongside co-manager Poszepczynski, have been crucial in navigating the complexities of the biotech sector with precision.”

The abrdn Asian Income Fund also achieved the triumvirate of yield, discount and returns, although it did not outperform in every time period. It beat its sector and benchmark over three and five years but trailed both over a decade. It has increased its dividend for 16 consecutive years, according to the AIC, and currently has a yield of 7.3%. It is trading on a discount of 10.2%.

Performance of trust vs benchmark & sector over 5yrs

Source: FE Analytics

Anthony Leatham, head of investment companies research at Peel Hunt, said: “The abrdn Asian Income Fund offers a strong combination of attractive total returns and a yield premium over the market and peer group, supported by a consistent dividend track record.

“We believe the disciplined focus on quality, dividends, valuation and growth, along with the constant reappraisal of companies in the portfolio and portfolio positioning, bodes well for both index outperformance and potential discount narrowing.”   

Aberdeen’s well-resourced Asian equity team includes 40 investment professionals across six local hubs and Yoojeong Oh leads the income strategies.

“The team’s edge has been across mid-cap companies with strong balance sheets, often with family ownership. We also see the benefits of regular and proactive engagement,” Leatham said.

Asia is becoming an attractive region for income-seeking investors. Half of the Asia Pacific ex-Japan index currently yields more than 3% and over 50% of the total return from Asian equities is being delivered by dividends, supported by robust free cashflow cover and strong balance sheets, he noted.

Elsewhere, Ecofin Global Utilities and Infrastructure is a contender with a 4.3% yield and a 10.3% discount, but it is difficult to measure its performance. It does not have a single benchmark and there are only two trusts in the IT Infrastructure Securities sector, although Ecofin has beaten its rival – Premier Miton Global Renewables – by a wide margin over one, three and five years.

On its factsheet, it shows five different indices as yardsticks, spanning infrastructure, utilities and stocks: S&P Global Infrastructure; MSCI World Utilities; MSCI World; FTSE All Share; and FTSE ASX Utilities.

Performance of trust vs sector & relevant indices over 5yrs

Source: FE Analytics

Widening the net to investment companies on a discount of 7% or more brings another crop of triple-threat trusts into the scope of this research.

JPMorgan European Growth & Income has a 4.2% yield and a 7.6% discount. It has outperformed its benchmark over one, three, five and 10 years, although it lagged its sector over a decade.

The trust has an FE fundinfo Crown Rating of four, placing it within the top 25% of its asset class for alpha, volatility and consistently beating its benchmark over the past three years.

It is managed by Alexander Fitzalan Howard, Tim Lewis and Zenah Shuhaiber and its largest holdings are Novo Nordisk, SAP, Novartis, ASML and Roche.

Performance of trust vs benchmark & sector over 5yrs

Source: FE Analytics

Marcus Phayre-Mudge’s TR Property beat its benchmark over three, five and 10 years but was in line with its peer group average. It has a 5.3% yield and an 8.5% discount. The trust has increased its dividend for 14 consecutive years.

Elsewhere, BlackRock Frontiers hurdled the MSCI Frontier Markets index over three, five and 10 years (however, it changed its benchmark in 2018 to the MSCI Emerging ex Selected Countries + Frontier Markets + Saudi Arabia Index).

It was included in Peel Hunt’s income playbook for 2025  has a 4.8% yield. Its income stream comes from cash generated by its underlying investments (as opposed to a yield target).

Led by Sam Vecht, the trust is trading on a 7.2% discount and its portfolio is cheap, according to Leatham; back in January, it had a price-to-earnings ratio of approximately 8x. Frontier markets overall look attractively valued compared to global developed market equities, so the trust offers a double discount, he added.

Three other trusts had a yield above 4% and a discount wider than 7% but a mixed track record.

JPMorgan Asia Growth & Income beat its benchmark over one, five and 10 years but lagged over three years and fell behind its peer group average over three and five years. It has a 4.2% yield and a discount of 8.2%.

BlackRock World Mining bested its peer group over five and 10 years but fell behind over one and three years. It boasts a 4.6% yield and a 9.8% discount.

Finally, Murray International beat its bogie over one, three and five years but not over 10. It hurdled the peer group average over three years but trailed during other periods.

It has a 4.4% yield and recently became an AIC ‘Dividend Hero’ for increasing its dividend for the 20^th consecutive year in 2024.

The trust was run by veteran stockpicker Bruce Stout until his retirement last year and is now co-managed by Martin Connaghan and Samantha Fitzpatrick, who worked alongside Stout since 2017 and 2019, respectively. It is trading on a 7.5% discount.

Currently there is £1,442 xd and cash for re-investment of £747

Next dividends to be received at the end of next week for re-investment.

It could be possible to open a new position for the Snowball, the risk being the more Trusts you own the higher the risk of buying a clunker. The cash will most probably be added to the current higher yielders in the portfolio.

But as in politics, a week is a long time.

FORESIGHT ENVIRONMENTAL INFRASTRUCTURE LIMITED

(“FGEN” or the “Company”)

Portfolio Update – CNG Foresight

FGEN, a leading listed investment company with a diversified portfolio of environmental infrastructure assets across the UK and mainland Europe, is pleased to announce a transaction to combine its investments in renewable biomethane (“Bio-CNG”) refuelling stations with the assets of ReFuels N.V. (“ReFuels”), a leading European supplier of Bio-CNG for the decarbonisation of heavy goods vehicles.

FGEN, together with another Foresight-managed fund (together, the “Foresight Funds”), currently own a majority interest in a joint venture (“CNG Foresight”) that owns 15 public access Bio-CNG refuelling stations and associated mobile refuelling equipment. ReFuels currently owns CNG Fuels Ltd, a developer of Bio-CNG refuelling stations and the operator of the stations held within CNG Foresight, and 79.2% of a biomethane sourcing company, Renewable Transport Fuel Services Ltd (“RTFS”).

The transaction will see CNG Foresight and RTFS become subsidiaries of CNG Fuels. On completion of the transaction, the Foresight Funds will receive 60% of the ordinary share capital of CNG Fuels, with FGEN’s look-through interest being 15%, and £150.15 million in 10% preferred return instruments issued by CNG Fuels, of which FGEN’s interest is £37.5m. ReFuels will receive the remaining 40% of ordinary share capital and £15.95 million in the same preferred return instruments. ReFuels will also have a return (ratchet) mechanism which may increase its share of value based on the exit valuation of the business.

The combination will create a fully integrated biomethane sourcing, station ownership and Renewable Transport Fuel Certificate business well-placed to build on its market leading position. The current network of stations in operation has the capacity to serve 10,000 HGVs per day and has an annual dispensing capacity of more than 310 million kg of Bio-CNG to customers including Amazon, DHL and Marks & Spencer. The transaction provides a path to further growth via a rollout of a further nine public access Bio-CNG refuelling stations by the end of 2028.

Completion of the transaction is subject to approval by an extraordinary general meeting (“EGM”) of ReFuels and certain other customary closing conditions. The notice of the EGM will be issued shortly. The transaction is expected to be completed in April 2025.

Chris Tanner, Foresight investment manager for FGEN, said:

“CNG Fuels has an unmatched track record in developing and operating Bio-CNG infrastructure across the UK. Their expertise, scale and first-mover advantage put them years ahead of the competition, uniquely positioned to deliver significant value creation as demand for low-carbon transport accelerates. We look forward to extending our long-standing collaboration with ReFuels through a simplified and efficient platform with a clear growth strategy”.

Philip Fjeld, CEO of ReFuels, said:

“By consolidating biomethane sourcing, station ownership and certificates, we are creating a leading integrated and fully equity-funded Bio-CNG infrastructure platform. This opens new sources of capital to finance a doubling of our refuelling capacity supported by rapidly increasing cash flow from operations. A larger station portfolio will enable additional truck fleets to decarbonise, further fuelling network effects and scale effects”.

Retirement options.

One.

Use a TR plan and buy an annuity to fund your retirement.

Canada Life figures show the 65-year-old with a £100,000 pension pot could buy an annuity linked to the retail price index (RPI) that would generate a starting annual income of £3,896. That’s up from £2,195 in the New Year following a 77% spike in rates this year.
Oct 22

Gambling with your future.

When you want to buy your annuity, interest rates could be low and the annuity would pay peanuts.

Also you have to surrender all your capital, so not an option for this blog.

Two.

A TR plan where the end destination is unknown as you have no idea of how much your portfolio would be worth as markets may have crashed just before you start drawdown.

With a TR plan it’s recommended you withdraw 4% of your portfolio every year, maybe best each January, hoping to benefit from a Santa Rally.

Three.

A dividend re-investment plan, where you can plan on the end result based on the number of years you have to re-invest.

The Snowball’s ten year plan is to produce income on 100k of seed capital of

around 14% pa. With compound interest you will make more in the last few years, than in all the early years, that’s why a plan is such a poor plan.

The problem, over 30 years of investing, an outsized amount of the wealth is generated in the final 10 years.

For example, let’s say I put £1,000 to work at 10% average returns. By the 20-year mark, my money has climbed to £6,728. By the 30-year mark, £17,449. Over half of all the investing returns come in the last third of the process.

That’s why Lifestyling is such a bad idea.

To earn 14% pa with a TR plan you would need to make a gain of £250k, of course you may not and have to keep working.

You could have a part TR/Dividend re-investment plan and use any gains to buy more shares in your dividend re-investment plan.

2025 Fcast Dividends of £9,120 (slightly ahead of plan)

The comparison share VWRP income using the 4% rule £5,160, this figure could be higher or lower at the end of 2025, that’s the gamble.

Remember without a plan you have no idea of your destination and bad plan is better than no plan GL.

The newest entrant to the AIC’s ‘Dividend Hero’ list

17 March 2025

One new trust has entered the illustrious list in 2025, although the total number of heroes remains unchanged.

By Jonathan Jones

Editor, Trustnet

Murray International has become the newest ‘Dividend Hero’, according to data from the Association of Investment Companies (AIC), after the investment trust upped its dividend for a 20th consecutive year in 2024.

With a yield of 4.47%, the trust has been an above-average performer in the IT Global Equity Income sector over the past one, three and five years, although it has fallen below the average over the past decade.

Formerly run by veteran stockpicker Bruce Stout, who retired last year, the trust is now co-managed by Martin Connaghan and Samantha Fitzpatrick, who had worked alongside Stout on the trust since 2017 and 2019 respectively.

Performance of trust vs sector and benchmark over 5yrs

Source: FE Analytics

In the trust’s latest factsheet, the managers wrote that the global economy presents a “mixed picture”. Although there were “signs of opportunity and resilience”, this was “tempered by persistent risks”.

“While growth remains steady in many regions, structural challenges and geopolitical uncertainties could affect economic activity in the coming months,” they said, highlighting protectionist policies and trade disruptions as key risks.

“Recent rhetoric over tariffs between the US, Mexico and Canada has added to market volatility. Meanwhile, escalating trade tensions between the US, China and Europe have raised uncertainty around global supply chains and inflation, which remains a lingering issue.”

However, Murray International invests in stocks that can deliver growing income and make capital returns, they noted, with an emphasis on diversifying across geographies and sectors.

At present, the trust is underweight in the US (31.3% of the portfolio) relative to the FTSE All World index, with overweights to Europe excluding the UK (25.1%) and Asia excluding Japan (22.9%).

This year, the ‘Dividend Hero’ title was awarded to 20 investment trusts in total, the same as last year, after Alliance Trust and Witan Investment Trust (two heroes) were merged.

The newly created Alliance Witan has the joint longest track record, with 58 years of dividend rises, as the resulting trust kept Alliance’s record. Witan had previously been on the list with 49 consecutive years, meaning it would have broached the half-a-century mark in 2025 had it remained its own entity.

City of London Investment Trust and Bankers were the other two trusts with 58 years, followed by Caledonia Investments with 57 years. Half of the 20 names listed below have increased their dividends for 50 or more consecutive years.

Source: AIC

Annabel Brodie-Smith, communications director of the AIC, said: “Investment trusts are particularly suitable for income investing over the long term. They can retain up to 15% of the income they receive each year and this reserve of income can be used to boost dividends when markets are tough. This allows investment trusts to smooth their flow of dividends and produce these long records of dividend growth.

“Our dividend heroes have shown remarkable resilience whilst continuing to raise their payouts during recent and historic high inflationary periods in the 1970s, the recession of the 1990s, the global financial crisis in 2008 and the pandemic. Whilst dividends are never guaranteed, investment trusts’ dividend hero track records are exceptional.”

While many trusts come from traditional income-paying sectors, such as equity income specialists, broader global equity strategies and multi-asset portfolios, four small-cap trusts also made the list.

Three came from the IT UK Smaller Companies sector (Athelney Trust, BlackRock Smaller Companies and Henderson Smaller Companies), while the longest track record belonged to the sole constituent of the IT Global Smaller Companies sector: The Global Smaller Companies Trust.

Nish Patel, fund manager of the trust, said: “Investors in smaller companies tend to focus on prospects for capital growth but there is a wealth of opportunity in the more mature end of the small-cap spectrum for investors looking for a balance of capital growth and long-term income growth.”

Interactive investor’s six ISA picks for all tastes

11 March 2025

The platform suggests six funds in six different sectors.

By Matteo Anelli

Senior reporter, Trustnet

 

Some investors can stomach risk in search of the best returns while others will want to protect their cash while eking out reasonable gains. Then there are those in the middle, who want the best of both worlds. Each investor has different needs and different fund-shaped holes in their portfolios to fill.

As such, below, the analysts team at interactive investor shares its top ISA picks across different investment styles, including growth, income and sustainable options – with the reminder that the end of the tax year on 6 April coincides with the reset date of the £20,000 ISA allowance, which will be lost unless put to use before then.

The risk-on option

We begin with an adventurous pick from senior investment analyst Alex Watts, who chose the Neuberger Berman US Multi-Cap Opportunities fund. This should appeal to investors who find the concentration of the US market disconcerting and are looking to capitalise on opportunities beyond the small set of ‘Magnificent Seven’ names running the market.

Although manager Richard Nackenson does invest in Microsoft (5.4%), Apple (4.8%) and Amazon (3.4%), the portfolio’s 45 holdings are chosen independently of any index, with an emphasis on cashflow and capital allocation decisions.

This approach has put the fund in the third quartile of the IA North America peers over the past 10, five and three years, but it has improved over the past 12 months when it rose to the second quartile with an 11.1% return.

Performance of fund against index and sector over 1yr

Source: FE Analytics

“The fund is unconstrained in being able to seek opportunities from large and mega-caps down to small-caps. While still able and willing to selectively invest in mega-cap stocks, the portfolio also houses businesses of varying scale and from a diverse and differentiated set of sectors to capitalise on the breadth of the US market,” Watts said.

“The manager doesn’t have to conform to any one investment style. Rather, the portfolio comprises stocks defined as special situations, opportunistic or classic, making for a fairly stylistically neutral portfolio and a differentiated exposure compared with the fund’s S&P 500 benchmark.”

For income seekers

Fund analyst Tom Bigley picked City of London, an investment trust conservatively run by Janus Henderson’s Job Curtis, who aims to provide long-term growth in income and capital by mainly investing in FTSE 100 companies.

Bigley mainly liked Curtis’ approach, focusing on well-managed companies that commit to their dividends. This has helped the trust to consistently increase its dividend every year since 1966. The current yield is 4.72%.

Performance of fund against index and sector over 1yr

Source: FE Analytics

“Curtis is a cautious, mildly contrarian investor who doesn’t ignore the macro picture, but primarily focuses on bottom-up analysis. Cash generation and physical assets are important elements, but the primary focus is dividend yield as a measure of value,” Bigley said.

“The use of reserves demonstrates the benefit of the investment trust structure to smooth income volatility over time,” he continued. “Over the long term, returns have been solid, but arguably a bigger attraction is that the trust is a consistent dividend payer.”

For fixed-income exposure

Geopolitical tension, persistent inflation and concerns regarding government spending across developed economies all have contributed to government and corporate bond yields remaining high in 2025.

Investors who wish to take advantage of the attractive income on offer in the UK may consider the Invesco Sterling Bond fund, recommended by Watts.

It has been managed by FE fundinfo Alpha Manager Michael Matthews since 2006, with Tom Hemmant joining him as co-manager in November 2023. They invest heavily in bonds issued within the financials sector, with around 40% of the portfolio held in bonds issued by banks and insurers, then followed by utilities and telecoms.

Performance of fund against index and sector over 1yr

Source: FE Analytics

“The team invests flexibly across sterling investment grade bonds but can also allocate to some bonds below investment grade, including subordinated debt. The managers look both at the fundamentals underlying an issuing company and take a top-down view to guide positioning,” Watts said.

“The fund’s yield of around 4.8% is attractive and Matthews’ approach has been well proven, with total returns over the long-run being impressive versus both peer group and the fund’s benchmark.”

For fans of the domestic market

Despite lagging for many years, UK equities have made an “impressive” start to 2025, Bigley said. If they continue to display some resilience, an allocation to the UK “could stand to benefit investors”.

Cheap companies due a change in fortune are the remit of the Fidelity Special Values Investment Trust, managed by Alpha Manager Alex Wright and co-manager Jonathan Winton.

They invest in companies trading at lower multiples where the market is yet to realise their potential, a bias that makes the FTSE 250 Wright’s main hunting ground. Currently, the allocation to small and mid-cap stocks is just over two-thirds of the portfolio.

Performance of fund against index and sector over 1yr

Source: FE Analytics

Performance-wise, the fund has been at the head of the five-strong IT UK All Companies sector across all main timeframes but, despite its strong track record, it is trading on a discount of more than 6%, which Bigly said is an attractive entry point to investors.

In emerging markets, India is the winner

Bigley preferred India over China in emerging markets as, over the past decade, the Indian economy and stock market have seen substantial growth, although it has pulled back in recent months.

The analyst’s pick in the sector was the Goldman Sachs India Equity Portfolio, a “well-diversified, multi-cap portfolio” with a bias towards the small and mid-cap space. The vehicle is “a good way to gain exposure to the region” and to benefit from the “highly experienced” Alpha Manager Hiren Dasani, who favours businesses with strong competitive advantages and low or decreasing competition.

This philosophy delivered strong performance consistently, outperforming the MSCI India IMI index in four of the past five calendar years as well as over five and 10 years.

Performance of fund against index and sector over 1yr

Source: FE Analytics

One key selling point for Bigley was company meetings, which are “a crucial part of the process”. He said: “The fund management team’s ability to meet companies on the ground in India differentiates it from many competitors”.

The sustainable option

Managed by Hamish Chamberlayne with a “disciplined” investment process and sustainability focus, the Janus Henderson Global Sustainable Equity is a “compelling” choice for investors looking to expand their core global equity exposure, said Bigley.

The fund aims to provide capital growth over the long term by investing in companies whose products and services contribute to positive environmental or social change. The portfolio of 50 to 70 stocks employs a growth-at-a-reasonable-price (GARP) strategy and is expected to show persistent biases to growth and mid-cap stocks relative to mainstream indices and, at the sector level, to favour technology and industrials.

Like many environmental, sustainability and governance (ESG)-focused investments, it has suffered in recent years but the longer-term track record is strong, with top-quartile returns over 10 years and second-quartile performance over half a decade.

Performance of fund against index and sector over 1yr

Source: FE Analytics

“Sustainability is central to the process. For a company to be considered eligible at least 50% of their revenues is required to be aligned with the team’s 10 positive impact themes, which are mapped to the UN Sustainable Development Goals,” said Bigley. “This results in a subset of companies with long-term compounding characteristics and support from structural growth drivers.”

Source: FE Analytics

Equity income investors could be leaving thousands of pounds on the table.

18 March 2025

Reinvesting dividends instead of taking them as income can make a colossal difference to long-term returns.

By Emma Wallis

News editor, Trustnet

Many investors use equity income funds because they want to draw a regular income from their savings – to meet living expenses in retirement, for example – at the same time as growing their capital.

Although this sounds like a ‘best of both worlds’ scenario, investors who take their dividends as income rather than reinvesting them could be missing out on thousands of pounds in compound interest.

This is also true for passive equity funds, according to research by Aberdeen. An investor who put an initial lump sum of £10,000 into the FTSE World, MSCI Europe or S&P 500 indices 10 years ago would have added more than £6,000 to their total return if they reinvested dividends, the fund manager found.

Aberdeen measured the impact of reinvesting dividends in nine major markets over a 10-year period, as the table below shows. The Dow Jones index had the biggest gap between its total return (reinvesting dividends) and capital return (when dividends were not reinvested).

Over 10 years to 28 February 2025, an initial £10,000 investment in the Dow Jones index would have grown into £37,016 with dividends reinvested. But an investor who withdrew dividends as income would have ended up with a £29,651 pot, Aberdeen discovered. In other words, they would have missed out on £7,365.

The FTSE 100 delivered a 10-year total return of £18,548 versus £12,682 on a capital return basis – a difference of £5,866.

Capital return versus total return for a £10,000 initial investment

Sources: Aberdeen, Bloomberg, data to 28 Feb 2025, returns in sterling

Ben Ritchie, head of developed market equities at Aberdeen, said: “Reinvesting dividends is key to long-term returns. While the impact has been seen over the past three and five years, it’s not until 10 years that the true magic of compounding really kicks in and delivers.

“Albert Einstein supposedly described compound interest – otherwise known as dividend reinvestment – as the ‘eighth wonder of the world’ to explain how returns can snowball over time.”

This will be a moot point for people who need income and don’t have the luxury of choosing whether to reinvest dividends.

However, savers with a longer time horizon who are going for growth should check they are using accumulation share classes for their equity funds (often signified by ‘Acc’, while ‘Inc’ stands for income), Ritchie said.

Looking at equity income funds specifically, whether investors use income or accumulation share classes will depend on their goals, said Victoria Hasler, head of fund research at Hargreaves Lansdown.

“If you are buying an equity income fund because you want to take the ‘natural’ income (i.e. the dividends from shares) then you will want to buy the income share class,” she explained.

“If you are using equity income as an investment strategy for capital growth then you probably want to reinvest the income, allowing it to compound, and the easiest way to do that is to buy the accumulation units.”

Many investors who do not need to withdraw an income hold equity income funds for their capital growth potential.

“The theory is that income funds tend to buy certain types of companies which are usually more mature with strong balance sheets and good cash flow. These types of companies can often be a bit more defensive than their growth-oriented peers and result in strong long-term returns,” Hasler said.

“This strategy relies on dividends being reinvested so investors would usually want to buy the accumulation share classes.”

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper© Provided by The Motley Fool

C Ruane

Retirement can seem a long way off for many people. A financially savvy worker can turn that long-term timeframe to their advantage and start investing sooner rather than later to help fund their retirement.

Regular saving can help build a sizeable retirement fund

Of course, starting at 30 would be even better than starting at 40 – and at 20 would be even better than at 30!

Unfortunately, though, many of us do not realise that (or have other spending priorities) until it is too late. Even at 40, fortunately, an investor could still make a big difference to their retirement fund if they start investing immediately.

Putting £100 per week into a Stocks and Shares ISA or SIPP and compounding it at 10% annually, after 25 years the investor will have a retirement fund of close to £535k.

That could help them draw an income (for example, via dividends) and retire earlier than otherwise.

Building a quality portfolio of great shares

A goal of 10% might not sound too challenging. After all, FTSE 100 insurer Phoenix Group (LSE: PHNX) currently offers a dividend yield of 10.2% and has been a consistent dividend raiser in recent years. Some other blue-chip shares also offer high yields.

Phoenix has a generous dividend yield, but its share price has fallen 11% in the past five years.

On top of that, it is always important to diversify across different shares in case one of them disappoints. Over the decades between age 40 and retirement, that is much more likely to happen than it may seem to an investor when they first start investing!

But with the right approach and investing mindset, I think a 10% compound annual growth rate could be achievable.

One share to consider

In fact, I do still think Phoenix is a share to consider for its long-term potential.

There are risks with all shares, including Phoenix. For example, it has a book of mortgages that include certain valuation assumptions. If a property market slump saw prices fall far enough, those assumptions could turn out to be inadequate, meaning Phoenix may need to revalue the book, hurting profits.

From a long-term perspective, though, I think the proven business continues to have strong potential.

The post Here’s how a 40-year-old could start investing £100 per week to retire early appeared first on The Motley Fool UK.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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Do real estate investment trusts (REITs) make great dividend shares

Always on the hunt for interesting dividend shares, our writer takes a closer look at some of the UK’s real estate investment trusts (REITs).

Posted by

James Beard

Published 17 March

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

Imagine a dividend share that returns at least 90% of its profit to shareholders each year. Well, I reckon most experienced investors would probably say this isn’t sustainable and warn that the payout’s likely to be cut.

However, there’s one particular type of stock – a real estate investment trust (REIT) — that must do this to avoid having to pay corporation tax. And with this potentially lucrative privilege available, perhaps not surprisingly, there are many REITs listed on the UK stock market.

One that’s recently grabbed the headlines is Care REIT, which specialises in healthcare properties. On 10 March, its share price soared 32.5% after news of a takeover approach was revealed. CareTrust, a US-listed equivalent, sees the acquisition as a means of gaining entry to the UK market. However, even with the jump in its share price, the stock still trades at a discount to its net asset value (NAV).

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.

Undervalued or unloved?

And this appears to be a common problem with REITs.

Despite the attractive yields on offer, their stock market valuations tend not to fully reflect the value of their underlying assets. On the plus side, this could represent a buying opportunity. But it might also be a sign that sceptical investors have concerns about the prospects for the notoriously cyclical property market.

Take Tritax Big Box REIT (LSE: BBOX) as an example to consider. It invests in large distribution centres (warehouses), and boasts Amazon and Ocado among its tenants. Yet despite forecasts predicting that the global logistics market will be worth $6trn by 2030, this particular REIT trades at a 22% discount to its NAV.

But the trust has ambitious growth plans. In January, as part of its intention to expand into the AI market, it submitted a planning application to build a £365m data centre near Heathrow airport.

However, as with all REITs, it’s vulnerable to a slump in the property market caused by a wider economic slowdown. Unoccupied premises and tenants failing to pay rents on time is a potentially disastrous combination.

And although Tritax Big Box’s yield (5.4%) is above the FTSE 250 average, are other REITs that offer a better return.

Passive income opportunities

Warehouse REIT also specialises in the logistics sector and is currently yielding 6.1%.

Based on its last four quarterly dividends, 

Supermarket Income REIT is presently offering a yield of 8%.

Regional REIT is yielding 7.6%. But its share price has struggled since the pandemic. That’s because its portfolio comprises mainly offices and business parks. And with the move towards increased working from home, the demand for its properties has fallen. Rents in the sector have also come under pressure. Regional REIT’s share price fell heavily in the summer of 2024, after it announced a £110.5m rights issue to help refinance some of its debt.

With their above-average dividends, REITs can be attractive for income investors. Of course, payouts are never guaranteed. And if interest rates stay higher for longer, this could reduce earnings. That’s because these trusts generally borrow to fund property acquisitions. Higher finance costs are therefore likely to impact on the level of dividends paid.

Despite these challenges, I think investors looking for exposure to the property market could consider REITs. Their generous dividends could make them a good option for those looking for a healthy income stream.