The highest yielding equity investment trusts

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The highest yielding equity investment trusts

Nick Sudbury reviews some of the highest yielding equity income trusts and picks out some of the more interesting ones.

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Investors who are looking for a high income with the prospect of capital growth might be interested to learn that there are 31 equity investment trusts that are yielding 4% or more. Many of them have a good record of increasing their annual dividends and have built up substantial revenue reserves to help safeguard the future distributions.

The list has been compiled by the analysts at Stifel, who point out that the revenue reserves are useful whenever there are dividend cuts in the underlying holdings, as they can be used to smooth the fund’s annual pay-outs. This should mean that the income from these investment trusts is more robust than similar open-ended funds that do not maintain reserves.

One option that they think offers value is Murray International (LON:MYI), which grew its dividend by 3% during 2018. The fund invests in a portfolio of shares from around the world and is currently yielding 5.7% with the dividends paid quarterly.

UK equities are out-of-favour

UK equities are out-of-favour because of Brexit, with a number of the funds that invest in them yielding over 4%. A good example is the City of London Trust (LON:CTY), which has increased its annual dividend for 51 consecutive years and is currently paying 4.5% with quarterly distributions.

The highest yield in the sector is the 5.3% that is available from the Merchants Trust (LON:MRCH). Simon Gergel, the manager, mainly invests in higher yielding FTSE 100 companies and typically uses gearing of 20% to 25% to increase the income and capital returns.

Dunedin Income Growth (LON:DIG) aims to generate an above average portfolio yield and is currently paying 4.7% with quarterly distributions. The shares are trading on a 10% discount, possibly because the 10-year returns are well behind the sector average.

Another laggard is Schroder Income Growth (LON:SCF), which invests in a concentrated portfolio of around 40 stocks, most of which are listed in the UK. The shares are yielding 4.1% and are available on a discount of 5%, with the dividend having been increased every year since launch in 1995.

Unusual areas that are paying a healthy income

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There are some unusual areas that are paying a healthy income, with the International Biotechnology Trust (LON:IBT) being a prime example. This is a sector that is more normally associated with high capital growth, but the fund started paying significant dividends, primarily from capital, a couple of years ago and is currently yielding 4.5%.

The same is also true of the Emerging Markets, yet Jupiter Emerging & Frontier Income (LON:JEFI), which floated in May 2017, aims to pay a dividend of at least 4p a year that would give it a prospective yield in excess of 4%.

Aberdeen Asian Income (LON:AAIF) invests in the Asia Pacific region and is yielding 4.5% with quarterly distributions. It has a good long-term performance record relative to its peer group and benchmark, yet the shares are trading on an 8% discount.

Funds that invest in the more volatile parts of the market run a higher risk of having to cut their dividends, and nowhere is this more evident that in the commodities sector. A good example is BlackRock World Mining (LON:BRWM), which cut its dividend from 21p to 13p in 2016, but was then able to start growing it again the year after. It is now back up to 18p with the shares yielding 6%.

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