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How to get a monthly income from investment trusts

FE Trustnet reveals how investors can use a basket of trusts to provide a monthly earnings stream.

By Thomas McMahon, Reporter, FE Trustnet Follow
Tuesday February 19, 2013


Investment trusts are increasingly paying dividends on a quarterly basis, according to AIC data, meaning that it is becoming easier to construct a portfolio that pays a monthly income.

Last week Witan Investment Trust announced it was switching from a biannual to a quarterly payment, joining big names such as Foreign & Colonial, Lowland, Standard Life Equity Income and Henderson Global.

In total, one-quarter of AIC-member investment trusts now pay dividends on a quarterly basis, with most of these sitting in income sectors. The £1bn F&C Commercial Property IT even pays a monthly income.

Annabel Brodie-Smith, communications director of the AIC, says that the trend is evidence of trusts trying to make themselves more appealing to retail investors in light of the Retail Distribution Review (RDR) reforms.

"Dividend dates are important for many income-hungry investors and this is particularly the case in the current low interest-rate environment," she said.

"So it’s interesting to see a growing number of companies moving to quarterly dividend payments, suggesting that many investors favour a 'little and often' approach to income investing."

Here, FE Trustnet looks at the options available for an investor who wants to construct a portfolio that pays a monthly yield.


January, April, July, October


Those trusts of Aberdeen with a quarterly yield pay out in January, giving investors a good place to start.

Shires Income and Murray Income are two high-yielding options, both sitting in the UK Growth & Income sector.

Shires Income, managed by Ed Beal, is currently yielding 5.4 per cent, one of the highest figures in a sector with an average payout of 3.9 per cent.

Murray Income, managed by Charles Luke, has a yield of 4.8 per cent, but has slightly underperformed Shires Income on a total return basis in recent years.

Performance of trusts over 3yrs

ALT_TAG

Source: FE Analytics

Aberdeen Asian Income and Aberdeen Latin American Income are two international options, although the yield on both portfolios is lower than the UK trusts, at 3.5 per cent and 3.8 per cent respectively.

Henderson High Income and City Merchants High Yield are two high-income options with these payout dates; the portfolios yield 5.7 per cent and 5.6 per cent respectively.

For those who really want to boost their income, Invesco Leveraged High Yield, paying 7.7 per cent, is an option.


This £101.6m trust is managed by Paul Causer and Paul Read and is sitting on a discount of 10.9 per cent.

Despite investing in high-risk bonds, the portfolio has beaten the FTSE All Share over three and five years on a total return basis, making 53.07 per cent over the past three years.

For diversification, there are options in debt, property and commodities. Real Estate Credit Investments is yielding 6.1 per cent, Duet Real Estate Finance 6.3 per cent and BlackRock Commodities Income 4.7 per cent.


February, May, August, November

FE Alpha Manager Neil Woodford’s £1.2bn Edinburgh Investment Trust is among the portfolios to pay out in February.

It has significantly outperformed his multi-billion pound Invesco Perpetual Income and Invesco Perpetual High Income portfolios on a total return basis and also has a higher yield, according to AIC figures.

Performance of trust vs funds over 3yrs


ALT_TAG

Source: FE Analytics


Edinburgh Investment Trust is currently yielding 4.2 per cent compared with the 3.5 per cent of the two income funds.

Merchants is a higher-yielding UK option – the payout is 5.7 per cent – while there are a number of Global funds with decent yields paying out in these months.

Henderson Far East is currently yielding 4.6 per cent, while the London & St Lawrence trust is yielding 3.9 per cent from a global portfolio.

Bruce Stout’s Murray International also pays out in these months, although its yield of 3.7 per cent is slightly lower than London & St Lawrence's.

However, Stout has built up a strong reputation after returning 88.57 per cent to investors over the past five years and 56.55 per cent over the past three.

There is a pair of high-yielding property funds that pay out in these months too: Standard Life Investments Property Income – 7.6 per cent – and UK Commercial Property – 7.7 per cent.


March, June, September, December

Ciaran Mallon’s Invesco Income Growth trust pays its income in March and it is currently yielding 3.8 per cent.

The trust was highlighted by Winterflood’s Simon Elliott this month as a potential bargain. Its discount has actually slightly widened since then, reaching 3 per cent.


The trust has almost doubled the returns of the FTSE All Share over the past three years, making 64.41 per cent while the index has climbed 34.91 per cent.

Performance of trust vs sector and benchmark over 3yrs

ALT_TAG

Source: FE Analytics

The highest-yielding fund to pay out in these months is F&C’s IRP Property Investments, which currently pays out a massive 12.1 per cent.

However, the fund has lost money over the past three years on a total return basis while every other trust in the AIC Property sector has made money.

Greenwich Loan Income also pays out in these months and yields a healthy 9.3 per cent.

The fund invests in collateralised loans and is held by Paul Craig, manager of the Henderson UK Strategic Income fund of investment trusts, who told FE Trustnet he rates it highly.

More mainstream portfolios to pay an income in these months are Midas Income & Growth – 4.3 per cent – and Standard Life Equity Income – 3.9 per cent.

All the trusts that pay quarterly, and their current yields, can be seen by clicking here.



 
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John Hill Feb 20th, 2013 at 12:38 AM

You should look at the Small Companies Dividend I T

Reply
L-C-G Feb 19th, 2013 at 11:56 PM

Regular dividend income reinvested is also a great way to build value in turbulent times if not taking the income. I have built a portfolio of mostly high yield ITs in ISA over the last 6 years - yielding over 5% overall on top of capital growth. One benefit of IT structure is that dividends can be maintained from reserve funds, and many ITs boast rising dividends over 20 years or more, and gearing boosts income.

But caution is needed when a payout is high, especially in specialists. The article mentions IRP with 12% yield - but omits to mention that this will likely reduce 30% after a planned merger with IPT, which will also see a reduced yield. @FE - I think you should correct the article.

Neither trust was in a position to sustain payouts (there has to be a profit to build up a reserve) - but even after reduction it will still be 7%+.

Reply
Owen Feb 19th, 2013 at 07:39 PM

Useful but a couple of good funds missing - city of London which keeps increasing its payout and Henderson div income - a solid bond fund

Reply
Rudy Feb 19th, 2013 at 05:31 PM

Yes very useful, thank you

Reply
Doodles Feb 19th, 2013 at 02:02 PM


Glad to see that so many of the trusts mention are already part of my portfolio for the same reason which this article highlights.

Reply
Theo Feb 19th, 2013 at 01:47 PM

This is a very useful article which will save a lot of people many hrs work.

But you would think it is something AIT should have done themselves as part of their work, a long time ago. I hope this article will wake them up from their slumber.

Reply
 

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