The ultimate income investment trusts

Laura Suter
20 August 2018
  • The ultimate income investments trusts, which yield up to 10% on a 10-year basis

  • 21 trusts yield 6% or more, while 12 yield 7% or more

  • Average total return over 10 years is 207% - with 481% the highest

  • £100,000 invested ten years ago in the 10 highest yielding trusts today would be worth over £280,000 and would be paying out an annual income of £8,130

The ‘Dividend Hero’ investment trusts are those that have generated dividend increases every year for 10 consecutive years or more. However, looking at dividend yield as a snapshot based on the current price is not a true reflection of the actual yield an individual investor is receiving.  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:

At the top of the table is British & American with a 10.4% yield.  This trust is the only one whose share price has actually fallen during that 10-year period, which will have enhanced the 10-year yield figure. Even with this share price fall, the effect of dividends over the past 10 years means investors selling today who had reinvested dividends, would still be up more than 139% over that period on a total return basis.

A total of 21 trusts are yielding 6% or more, based on buying the trust 10 years ago, while 12 are yielding 7% or more.

Some of the examples paint a very compelling picture for investors. For example, Schroder Oriental Income would have turned £10,000 into £39,000 over the past 10 years with dividends reinvested and today would be generating a growing annual income of £900.

Henderson Smaller Companies has delivered one of the highest total returns, turning £10,000 into £51,700 and would be generating an annual income today of £790.

The total return figures also highlight the benefit of reinvesting dividends for buy-and-hold investors who are not reliant on the income now. These figures look at the return you’d have seen over 10 years if you’d reinvested your dividends back into the investment trust, and so benefitted from the power of compounding.

Investment trusts focused on smaller companies delivered the largest total returns, led by BlackRock Smaller Companies, at 480.8% return over the 10 years, followed by BlackRock Throgmorton at 478.5%, Standard Life Smaller Companies at 431.2% and Henderson Smaller Companies at 417%.

Perennial favourites among investment trust fans also get a high showing, with Baillie Gifford’s Scottish Mortgage Investment Trust returning 438% over the 10 years on a total return basis, while Witan has returned 248%. Caledonia Investments is one of the highest yielding based on the 2008 price, at 8.6%, while City of London is yielding 7.1% on the same basis.

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 £456,000 and would be generating £5,370 income currently.

Meanwhile, a portfolio evenly split between the top 10 trusts based on current yield would have turned £100,000 into just over £280,000 but would be paying out current income of £8,130.

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

“These figures will be eye opening for the hundreds of thousands of investors who want to use their long-term savings to generate a steady income stream.

“What makes the trusts more compelling is their proven ability to increase these payouts each year. Any investor would be pretty happy with City of London investment trust yielding 7.1% based on 2008’s price, coupled with a 51-year track record of increasing its payout, or Caledonia’s 8.6% 10-year yield, with 50 years of increased dividends.

“The figures show that investors often have to decide between jam today and jam tomorrow, with income often coming at the price of lower capital growth, or vice versa. With the example of British & American investors would be seeing a solid dividend yield today, but would have sacrificed capital growth over that period.

“Conversely, some of the lower yielding trusts based on the investor buying in 2008 have delivered some of the highest total returns. Examples include Scottish Mortgage, which is only yielding 2.4% but has delivered one of the highest total returns at 438% and F&C Global Smaller Companies, which is yielding 3.4% but has a 10-year total return of 336%.

“That said, even the lowest yielding trusts have proven their ability to hand investors a reliable and growing income each year for at least 10 years, making them particularly attractive for those using the pension freedoms in retirement relying on the income to fund their lifestyle.

“Investment trusts are particularly suited to providing steady income for investors, as their structure enables them to withhold up to 15% of the income they receive each year in order to be used in future years when dividends may be lower. The longer-term nature of the closed-end structure of investment trusts mean that managers can also invest for the long-term and ride out market volatility, without being forced to sell by investor redemptions.”

Top 10 trusts by total return:

Company AIC sector Years of divi raises 2017 yield on 2008 price 2017 yield on 2018 price Total return Growth of £10,000  over 10 years Income today on £10,000 investment*
BlackRock Smaller Companies UK Smaller Comps 14 6.8 1.5 480.8% £58,078 £682
BlackRock Throgmorton Trust UK Smaller Comps 14 5.9 1.5 478.5% £57,848 £585
Scottish Mortgage Investment Trust Global 35 2.4 0.6 438.3% £53,829 £241
Standard Life UK Smaller Companies UK Smaller Comps 10 5.6 1.3 431.7% £53,171 £561
Henderson Smaller Companies UK Smaller Comps 14 7.9 2.0 416.9% £51,693 £788
F&C Global Smaller Companies Global 47 3.4 0.9 335.9% £43,590 £343
Schroder Oriental Income Asia Pacific ex-Japan 11 9.0 3.6 290.5% £39,051 £902
Witan Investment Trust Global 43 4.9 1.8 248.0% £34,800 £490
Foreign & Colonial Investment Trust Global 47 3.6 1.4 221.8% £32,181 £356
Alliance Trust Global 51 4.2 1.7 218.6% £31,858 £420

Source: AJ Bell & AIC. Data to 30th June 2008 and 29th June 2018. Dividend data based on 2017 full year payout. *Based on investing 10 years ago.

 

Top 10 trusts by current income:

Company AIC sector Years of divi raises 2017 yield on 2008 price 2017 yield on 2018 price Total return Growth of £10,000  over 10 years Income today on £10,000 investment*
British & American UK Equity Income 22 10.4 11.2 139.3% £23,926 £1,037
Schroder Oriental Income Asia Pacific ex-Japan 11 9.0 3.6 290.5% £39,051 £902
Henderson Far East Income Asia Pacific ex-Japan 10 8.9 5.6 172.9% £27,293 £887
Caledonia Investments Global 50 8.6 5.5 82.2% £18,221 £858
Henderson Smaller Companies UK Smaller Comps 14 7.9 2.0 416.9% £51,693 £788
MedicX Property Specialist 10 7.8 7.5 107.7% £20,772 £779
Establishment Inv Trust Global 14 7.4 5.4 99.4% £19,941 £739
Value & Income UK Equity Income 30 7.2 4.2 161.9% £26,192 £718
City of London UK Equity Income 51 7.1 3.9 173.7% £27,365 £711
Murray International Global Equity Income 13 7.1 4.1 157.6% £25,760 £708

Source: AJ Bell & AIC. Data to 30th June 2008 and 29th June 2018. Dividend data based on 2017 full year payout. *Based on investing 10 years ago.

 

Full list of dividend heros:

Company AIC sector Years of divi raises 2017 yield on 2008 price 2017 yield on 2018 price Total return Growth of £10,000  over 10 years Income today on £10,000 investment
BlackRock Smaller Companies UK Smaller Comps 14 6.8 1.5 480.8% £58,078 £682
BlackRock Throgmorton Trust UK Smaller Comps 14 5.9 1.5 478.5% £57,848 £585
Scottish Mortgage Investment Trust Global 35 2.4 0.6 438.3% £53,829 £241
Standard Life UK Smaller Companies UK Smaller Comps 10 5.6 1.3 431.7% £53,171 £561
Henderson Smaller Companies UK Smaller Comps 14 7.9 2.0 416.9% £51,693 £788
F&C Global Smaller Companies Global 47 3.4 0.9 335.9% £43,590 £343
Schroder Oriental Income Asia Pacific ex-Japan 11 9.0 3.6 290.5% £39,051 £902
Witan Investment Trust Global 43 4.9 1.8 248.0% £34,800 £490
Foreign & Colonial Investment Trust Global 47 3.6 1.4 221.8% £32,181 £356
Alliance Trust Global 51 4.2 1.7 218.6% £31,858 £420
TR European Growth European Smaller Comps 15 3.5 1.4 216.4% £31,639 £345
Temple Bar UK Equity Income 34 7.0 3.1 216.1% £31,614 £695
Henderson EuroTrust Europe 13 5.3 2.2 210.9% £31,093 £532
Bankers Investment Trust Global 51 4.9 2.1 210.0% £31,004 £488
Scottish American Global Equity Income 38 5.4 2.9 197.3% £29,733 £539
Henderson European Focus Europe 11 4.9 2.2 196.1% £29,614 £491
Edinburgh Investment UK Equity Income 12 6.8 3.7 194.5% £29,454 £680
BlackRock Greater Europe Europe 12 3.5 1.5 189.3% £28,932 £349
Schroder Income Growth UK Equity Income 22 7.1 3.8 186.9% £28,689 £707
Aberdeen New Dawn Asia Pacific – ex-Japan 13 4.1 1.7 183.7% £28,374 £409
Standard Life Equity Income UK Equity Income 17 6.5 3.5 178.8% £27,877 £648
City of London UK Equity Income 51 7.1 3.9 173.7% £27,365 £711
Henderson Far East Income Asia Pacific ex-Japan 10 8.9 5.6 172.9% £27,293 £887
Value & Income UK Equity Income 30 7.2 4.2 161.9% £26,192 £718
JPMorgan Claverhouse UK Equity Income 45 5.3 3.2 161.4% £26,136 £533
Murray International Global Equity Income 13 7.1 4.1 157.6% £25,760 £708
Witan Pacific Asia Pacific – Inc-Japan 13 3.1 1.5 156.8% £25,681 £306
F&C Capital & Income UK Equity Income 24 4.9 3.2 152.3% £25,231 £485
Athelney UK Smaller Comps 15 5.9 3.4 150.0% £25,004 £585
Invesco Income Growth UK Equity Income 20 6.2 3.7 150.0% £25,003 £620
Perpetual Income & Growth UK Equity Income 18 6.7 3.4 148.9% £24,888 £673
Brunner Investment Trust Global 46 3.9 2.1 147.7% £24,770 £390
Scottish Investment Trust Global 34 4.8 2.6 146.4% £24,636 £481
Merchants Trust UK Equity Income 35 6.5 4.7 143.1% £24,308 £652
International Public Partnerships Infrastructure 10 6.2 4.3 140.9% £24,091 £619
British & American UK Equity Income 22 10.4 11.2 139.3% £23,926 £1,037
Murray Income UK Equity Income 44 6.2 4.2 130.6% £23,057 £620
HICL Infrastructure Infrastructure 10 6.0 4.8 130.0% £23,004 £602
MedicX Property Specialist 10 7.8 7.5 107.7% £20,772 £779
Artemis Alpha Trust UK All Companies 13 3.4 2.3 105.9% £20,593 £344
Establishment Inv Trust Global 14 7.4 5.4 99.4% £19,941 £739
Caledonia Investments Global 50 8.6 5.5 82.2% £18,221 £858

Source: AJ Bell & AIC. Data to 30th June 2008 and 29th June 2018. Dividend data based on 2017 full year payout. *Based on £10,000 investsment 10 years ago. Notes: Northern Investors Company not included as it is currently winding up

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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