I recently examined some top UK investment trusts with a view to adding long-term income to my portfolio. I rated two very highly, City of London Investment Trust and Murray Income Trust.
Both make the Association of Investment Companies’ list of Dividend Heroes. They’ve raised their dividends for 55 and 54 years in a row, recently yielding around 5% and 4%, respectively. Here are three more I’m considering.
Contrarian investment trust
I quite like the look of Fidelity Special Values (LSE: FSV) at the moment, with a 3.2% dividend in 2020. That’s not one of the biggest yields around. But it is nicely progressive, having grown by around 25% over the past three years. And with a long-term outlook, I see better value in a relatively modest dividend with a progressive future then I do in a higher yield but with less convincing prospects.
About three-quarters of the trust’s assets are in the UK. The current biggest holding is Legal & General, with Aviva taking the third spot. Royal Dutch Shell is sandwiched in between. The trust is managed with a contrarian approach, and that shows from its big investments in these two depressed sectors – sectors I definitely consider risky now.
Still, a contrarian outlook fits in with my risk profile, and there’s reasonable diversification in the trust’s assets. I’m putting Fidelity Special Values on my list of buy candidates.
Big yield
I can’t overlook Merchants Trust (LSE: MRCH), which produced a dividend yield of 6.2% in 2020. That was a year when earnings were hit by Covid-19 too. And it shows the benefit of investment trusts being able to hold back some cash in better years to keep the dividends going during leaner times.
This trust has lifted its dividend for 39 straight years, so there should be plenty of motivation to keep it going. Merchants has GlaxoSmithKline as its top holding, and I’m upbeat about that. British American Tobacco and Imperial Brands are in the portfolio too. And while they both offer high dividend yields, that might introduce an ethical barrier for some investors.
What’s the downside? Well, we really need to see earnings growth getting back on track. If it doesn’t, and dividend progress falters, we might see investors heading for the door. I think that risk is minimal, though. And I’m bullish.
Global income
I’ll head away from UK-focused trusts now and go for Murray International Trust (LSE: MYI). This one still has around 10% of its cash invested in the UK, but the rest is spread quite widely around the globe. It aims to achieve better than average dividend yields, and to maintain progressive rises ahead of inflation. The trust has been achieving that, providing a yield of 4.8% in 2020.
The international diversification is intriguing. Murray International has Taiwan Semiconductor Manufacturing, which has a NASDAQ listing, as its biggest holding. Unilever is its biggest UK-based holding, and that’s a company I’ve liked for many years (but have never invested in directly).
The risk for me here is international uncertainty. By that I don’t mean just risky economies and volatile exchange rates. I also mean my own lack of understanding of a lot of the companies involved. But I can’t help feeling it might complement my UK-focused investment trust holdings.
