At a time when all eyes seem to be on income investments, we’re particularly indebted to Iain Scouller of Oriel Securities for this morning’s very illuminating insight into the highest-yielding equity trusts.
According to Oriel, there are currently 20 trusts investing in equities which have a yield of 4.0% and higher, and with market caps in excess of £70m – a significant improvement on the 16 trusts which Oriel listed in May. For investors prepared to take equity risk, Scouller says, these may be attractive for income investors at a time of exceptionally low interest rates. In addition, the property, infrastructure, renewable energy and debt fund sectors also continue to offer attractive yields.
New entrants to the 4.0% plus list since May, he says, have included Murray Income, City of London and JPMorgan Russian. But it’s not always necessarily that strong dividend growth has resulted in higher dividend yields; for some of the joiners, he says, it reflects a fall in share prices.
In the table below, Oriel lists funds primarily invested in listed equities, with a historic yield of at least 4.0% – which, Scouller says, is at a significant premium to the FTSE All Share yield of 3.4%.
High-flyers among the UK trusts include Merchants, which has a yield of 5.1%, and with the shares on a 2% premium (NAV ex-income).Looking overseas, higher yielders include the European Assets trust, with a 6.6% yield; however, this is a fund where the Board resets the rate of dividend annually and finances it partly by paying out capital. Henderson Far East Income has a yield of 5.6%, it says, with investments in Asian and Australian equities and preference shares.
JPMorgan Russian’s yield of4.0% might seem attractive at present, but Oriel warns that this level of dividend may not be maintained going forward, since the fund’s focus is on capital growth. And British Assets’ 4.9% yield needs to be viewed against yesterday’s announcement of a change in policy away from equities – with 60% of the portfolio henceforth being invested in a multi-asset portfolio. (The Board says it intends to maintain the dividend, however.)
Oriel Securities Limited
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