It has been possible to obtain a double-digit yield on your original investment in some of the AIC’s Dividend Heroes within 10 years of buying in, according to new research from AJ Bell.
The AIC’s Dividend Hero investment trusts are classed as those that have generated dividend increases in at least every one of the past 20 years, while the AIC’s Next Generation Dividend Heroes are those that have achieved the feat in at least 10.
Aside from British & American, the share price of which has more than halved over the past year, the highest 2018 headline yield on offer from the trusts in these categories is 6 per cent.
However, if you had invested 10 years ago, the 2018 dividend on three of the trusts – Henderson Smaller Companies, BlackRock Smaller Companies and British & American – would have represented a double-digit yield on your original investment.
Top-10 Dividend Heroes by current income
A further seven offered 2018 dividends that represented a yield of 8 per cent or more on an investment made 10 years ago.
These figures don't even take into account the power of compounding.
Investors in Henderson Smaller Companies and BlackRock Smaller Companies who didn’t take the income but automatically reinvested their dividends instead would have seen total returns of 432.10 and 519.9 per cent respectively over the past decade, meaning a £10,000 investment made 10 years ago would now be worth £53,214 and £61,986, respectively.
Performance of trusts vs sector and index over 10yrs
Source: FE Analytics
On 2018 yields of 3 and 2 per cent, this would result in an annual income today of £1,596.42 and £1,239.72, respectively – or yields of 15.96 and 12.39 per cent on the original investment.
Five trusts have delivered a total return of 400 per cent or more over the past decade. Four of these invest in the IT UK Smaller Companies sector.
BlackRock Throgmorton is one of these, turning a £10,000 investment in 2009 into £64,091 today. It is yielding 8.6 per cent, based on buying 10 years ago, a significant uplift on the current yield of 1.7 per cent.
IT Global trust Scottish Mortgage also makes the top-five for total return, with gains of 523 per cent over this period, turning a £10,000 investment 10 years ago into £62,341 today. Despite making the Dividend Hero list with 37 years of consecutive dividend increases, the trust is neither income-focused nor a high yielder – it has a 10-year yield of 3.2 per cent and a current yield of less than 1 per cent (in part due to its soaring share price).
Top-10 Dividend Heroes by total return
A portfolio evenly split between the top 10 investment trusts by total return over the past 10 years would have turned £100,000 into more than £475,000 and would be generating almost £7,000 a year in income.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “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 pay-outs – in some cases for five decades or more.
“Any investor would be pleased with the 11 per cent yield from Henderson Smaller Companies, meaning it is paying out more than £1,100 income a year based on a £10,000 investment in 2009.”
She added that four trusts have delivered the “Holy Trinity” of a sizeable yield and a top-10 total return among the list of AIC Dividend Heroes or Next Generation Dividend Heroes: Henderson Smaller Companies, BlackRock Smaller Companies, Schroder Oriental Income and BlackRock Throgmorton.
“Investment trusts are well suited to giving investors a steady income, as they can withhold up to 15 per cent of the income they receive each year to be used to boost dividends in future years when pay-outs may be lower,” Suter added.
“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.”