A third of investment companies are yielding more than the FTSE 100 average, figures released by the Association of Investment Companies (AIC) show.
As equity markets have struggled to maintain any momentum in 2011 an increasing number of investors are looking at ways to maximise the income they receive from their investment portfolio.
While a wealth of fund managers including industry stars Bill Mott and Neil Woodford have advocated the income paying qualities of the highest quality blue-chip companies, the figures from the AIC show that investment trusts are also offering some attractive yield.
The Property Direct UK sector has the highest average dividend yield of 7 per cent, and is on an average discount of -4.2 per cent, followed by UK High Income with a 6.6 per cent average yield and Global High Income which has a 5.4 per cent average yield.
According to the AIC, of the 33 per cent of investment companies which are providing a higher level of income than the average FTSE 100 company, two thirds are trading at a discount to NAV.
Highest yielding investment trusts
| Company | Dividend yield (%) | Discount |
| British & American | 11.1 | -13.4 |
| Greenwich Loan Income (AIM) | 10.0 | -41.6 |
| IRP Property Investments | 9.7 | -8.0 |
| Picton Property Income | 9.6 | -35.3 |
| Invsita Foundation Property | 9.5 | -24.8 |
| Invesco Leveraged High Yield | 9.2 | -7.3 |
| ISIS Property | 8.3 | -7.3 |
| Standard Life Investments Property Income | 7.8 | -8.2 |
| European Assets | 7.6 | -10.0 |
| Princess Private Equity Holding | 7.4 | -32.2 |
Source: AIC
British & American, Greenwich Loan Income (AIM) and IRP Property Investment are the highest yielding investment companies with yields of 11.1 per cent, 10 per cent and 9.7 per cent respectively.
“The investment company sector has long recognised the importance of dividends and it’s encouraging to see such a significant proportion of the sector yielding more than the FTSE 100 annual average,” said Annabel Brodie-Smith, communications director at the AIC.
Brodie-Smith explains that investment trusts have an advantage over their open-ended fund counter-parts as they can build up their balance sheets for rainy days.
“Investment trusts have the ability to sustain their dividends, by building up their revenue reserve in good years which allows them to pay dividends in difficult years. They do this by retaining up to 15 per cent of the income they receive each year and transferring this to their revenue reserve. Known as ‘smoothing’ dividends, this is one of the defining characteristics of the sector.”
She added: “Income-seeking investors need to do their research properly and not get carried away by yield alone. Investors need to consider their risk profile when making an investment decision and if investors are in any doubt they should consult a financial adviser.”
A recent FE Trustnet study found that higher yielding UK equity focused investment trusts were more able to maintain capital growth than OIECs.