How to generate an annual yield of over 10% from investment trusts

Laura Suter
4 September 2019

•    The ultimate income investments trusts, which yield up to 11% on a 10-year basis
•    20 trusts are yielding 7% or more, while four trusts are yielding 10% or more
•    Average total return over 10 years is 210.5% -- highest is 541%

‘Dividend Hero’ investment trusts have generated dividend increases every year for 20 consecutive years or more, while the ‘Next Generation Dividend Hero’ trusts have done so every year for 10 consecutive years or more. 
However, those investors who bought years ago could be getting far higher yields on their money than the headline figure today. For that you have to look at the current yield compared to the price when the investor purchased the investment trust. In this analysis we have compared the current yield to the share price of each trust 10 years ago.

Highlights:

Henderson Smaller Companies comes top of the pack for its current yield, at 11%, which equates to just over £1,100 for every £10,000 invested a decade ago. Over the past decade investors who had automatically reinvested their dividends would have seen a total return of 432%.
A total of 20 trusts are yielding 7% or more, based on today’s income and buying the trust 10 years ago, while four trusts are yielding 10% or more. The top two are both focused on investing in small UK businesses with BlackRock Smaller Companies a close second to Henderson Smaller Companies. They both have 16 years of increasing their dividends. The Henderson trust has turned a £10,000 investment into £53,214 over the past decade, while the BlackRock trust has a 10.3% yield and the same investor would be sitting on almost £62,000.
British & American trust makes the top income trusts, yielding 10.1% but is one of the few to actually see a share price fall during the 10 years, with it down more than 58%, which serves to boost the 10-year yield figure. 
Buy-and-hold investors who don’t need the income today can reinvest their dividends and benefit from the power of compounding. Five trusts have handed investors a total return of 400% or more over the past decade, four of which invest in the UK Smaller Companies sector. 
BlackRock Throgmorton is one of those, turning a £10,000 investment in 2009 into £64,091 today. It is yielding 8.6%, based on buying 10 years ago, a significant uplift on the current yield of 1.7%. 
Global trust Scottish Mortgage also makes the top five for total return, with a 523% return over that period, turning a £10,000 investment 10 years ago into £62,341 today. Despite making the Dividend Hero list with 36 years of increasing dividends, the trust is not income focused nor a high yielder – with a 10-year yield of 3.2% and yield of less than 1% today (in part due to its soaring rise in share price).
A portfolio evenly split between the top 10 investment trusts by total return, over the past 10 years would have grown £100,000 into more than £475,000 and would be generating almost £7,000 income currently. 
Meanwhile, a portfolio evenly split between the top 10 trusts based on current yield would have turned £100,000 into just over £365,000 but would be paying out current income of almost £10,000.

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“The reality is that most investors buy and hold over a long period, and these figures will be a welcome boost to those who bought 10 years ago and are sitting on a hefty yield today. These trusts are not just high yielders, they have proved that they can consistently deliver increases in their payouts – in some cases for five decades or more.
“Any investor would be pleased with the 11% yield from Henderson Smaller Companies, based on buying 10 years ago, meaning it is paying out more than £1,100 income a year based on a £10,000 investment in 2009.
“What’s more four trusts have managed to deliver the Holy Trinity of a sizeable yield and a top total return. Henderson Smaller Companies, BlackRock Smaller Companies, Schroder Oriental Income and BlackRock Throgmorton all come top for the current yield on buying a decade ago and total return. 
“Investment trusts are well suited to giving investors a steady income, as they can withhold up to 15% of the income they receive each year to be used to boost dividends in future years when payouts may be lower. The fact that fund managers aren’t forced to sell when they see outflows means the trusts can be longer term in nature and managers can ride out market volatility, without being forced to sell by investor redemptions.”

Top 10 trusts by total return:

Company

AIC sector

Years of dividend

increases

2018 yield on 2009 price

2018 yield on 2019 price

Total return (%age)

Growth of £10,000 pot since 2009

Income today on £10,000 invested in 2009

BlackRock Throgmorton

UK Smaller Cos

15

8.6%

1.7%

540.9%

£64,091

£862

Scottish Mortgage

Global

37

3.2%

0.6%

523.4%

£62,341

£322

BlackRock Smaller Cos

UK Smaller Cos

16

10.3%

2.0%

519.9%

£61,986

£1,030

Henderson Smaller Cos

UK Smaller Cos

16

11.0%

2.6%

432.1%

£53,214

£1,101

Standard Life UK Smaller Cos

UK Smaller Cos

12

6.3%

1.5%

402.3%

£50,229

£633

BMO Global Smaller Cos

Global

49

3.8%

1.1%

293.6%

£39,357

£380

Scottish American

Global Equity Inc

39

6.9%

2.8%

267.1%

£36,705

£689

Schroder Oriental Income

Asia Pacific Ex Japan

12

9.2%

3.8%

259.1%

£35,911

£915

Bankers

Global

52

5.6%

2.1%

257.7%

£35,773

£563

F&C Investment Trust

Global

48

4.4%

1.5%

254.0%

£35,398

£441

Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

 

Top 10 trusts by current income:

Company

AIC sector

Years of dividend increases

2018 yield on 2009 price

2018 yield on 2019 price

Total return (%age)

Growth of £10,000 pot since 2009

Income today on £10,000 invested in 2009

Henderson Smaller Cos

UK Smaller Cos

16

11.0%

3%

432.1%

£53,214

£1,101

BlackRock Smaller Cos

UK Smaller Cos

16

10.3%

2%

519.9%

£61,986

£1,030

British & American

UK Equity Income

24

10.1%

24%

17.0%

£11,695

£1,012

Schroder Oriental Income

Asia Pacific Ex Japan

12

9.2%

4%

259.1%

£35,911

£915

BlackRock Throgmorton

UK Smaller Cos

15

8.6%

2%

540.9%

£64,091

£862

Scottish Investment Trust

Global

35

8.5%

4%

158.1%

£25,813

£852

Athelney

UK Smaller Cos

16

8.2%

4%

209.0%

£30,897

£824

Henderson Far East Income

Asia Pacific Ex Japan

11

8.0%

6%

132.8%

£23,283

£801

Edinburgh Investment

UK Equity Income

14

8.0%

5%

147.4%

£24,743

£798

City of London

UK Equity Income

53

8.0%

4%

179.7%

£27,970

£798

Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

 

Full list of dividend heroes:

Company

AIC sector

Years of divi increases

2018 yield on 2009 price

2018 yield on 2019 price

Total return (%age)

Growth of £10,000 pot since 2009

Income today on £10,000 invested in 2009

Henderson Smaller Companies

UK Smaller Cos

16

11.0%

3%

432.1%

£53,214

£1,101

BlackRock Smaller Companies

UK Smaller Cos

16

10.3%

2%

519.9%

£61,986

£1,030

British & American

UK Equity Income

24

10.1%

24%

17.0%

£11,695

£1,012

Schroder Oriental Income

Asia Pacific Ex Japan

12

9.2%

4%

259.1%

£35,911

£915

BlackRock Throgmorton

UK Smaller Cos

15

8.6%

2%

540.9%

£64,091

£862

Scottish Investment Trust

Global

35

8.5%

4%

158.1%

£25,813

£852

Athelney

UK Smaller Cos

16

8.2%

4%

209.0%

£30,897

£824

Henderson Far East Income

Asia Pacific Ex Japan

11

8.0%

6%

132.8%

£23,283

£801

Edinburgh Investment

UK Equity Income

14

8.0%

5%

147.4%

£24,743

£798

City of London

UK Equity Income

53

8.0%

4%

179.7%

£27,970

£798

Value and Income

UK Equity Income

32

7.9%

5%

156.3%

£25,628

£790

Aberdeen Standard Equity Inc

UK Equity Income

18

7.9%

5%

116.7%

£21,672

£789

Merchants

UK Equity Income

37

7.8%

5%

146.6%

£24,660

£781

HICL Infrastructure

Specialist: Infrastructure

12

7.5%

5%

168.8%

£26,879

£752

Aberdeen Asian Income Fund

Asia Pacific Ex Japan

10

7.5%

4%

168.8%

£26,877

£750

Perpetual Income & Growth

UK Equity Income

20

7.4%

5%

113.4%

£21,339

£739

Murray International

Global Equity Income

14

7.3%

4%

152.5%

£25,254

£732

Schroder Income Growth

UK Equity Income

23

7.1%

4%

155.0%

£25,499

£714

JPMorgan Claverhouse

UK Equity Income

46

7.0%

4%

156.9%

£25,692

£697

Scottish American

Global Equity Inc

39

6.9%

3%

267.1%

£36,705

£689

Invesco Income Growth

UK Equity Income

22

6.8%

4%

144.2%

£24,424

£682

International Public Partnerships

Specialist: Infrastructure

11

6.5%

4%

149.8%

£24,977

£654

Henderson EuroTrust

Europe

15

6.5%

3%

210.8%

£31,079

£650

Murray Income

UK Equity Income

45

6.4%

4%

153.2%

£25,318

£643

Standard Life UK Smaller Cos

UK Smaller Cos

12

6.3%

1%

402.3%

£50,229

£633

Temple Bar

UK Equity Income

35

6.1%

4%

136.5%

£23,649

£607

Witan

Global

44

6.0%

7%

237.7%

£33,767

£597

BMO Capital & Income

UK Equity Income

25

5.8%

4%

139.0%

£23,900

£585

Bankers

Global

52

5.6%

2%

257.7%

£35,773

£563

Henderson European Focus

Europe

12

5.5%

3%

182.2%

£28,220

£552

TR European Growth

European Smaller Cos

16

5.3%

2%

173.7%

£27,372

£532

Brunner

Global

47

5.3%

2%

215.6%

£31,556

£528

Alliance Trust

Global

52

4.5%

2%

234.4%

£33,435

£447

F&C Investment Trust

Global

48

4.4%

2%

254.0%

£35,398

£441

BMO Global Smaller Companies

Global

49

3.8%

1%

293.6%

£39,357

£380

BlackRock Greater Europe

Europe

13

3.7%

1%

211.0%

£31,101

£374

Witan Pacific

Asia Pacific Inc Japan

14

3.7%

2%

153.2%

£25,321

£371

Caledonia

Flexible Investment

52

3.5%

2%

141.4%

£24,140

£353

Scottish Mortgage

Global

37

3.2%

1%

523.4%

£62,341

£322

Artemis Alpha Trust

UK All Companies

15

2.4%

2%

60.5%

£16,053

£240

Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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