Here I want to talk about three in particular, and reveal what makes them such powerful dividend payers. The companies are Primary Health Properties (LSE:PHP), City of London Investment Trust (LSE:CTY), and Rathbones (LSE:RAT).

Read on to discover what makes them passive income stars.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Three of the best

Each of these FTSE 250 shares boast features that make them ideal dividend stocks. With Primary Health Properties, these qualities include:

• Real estate investment trust (REIT) classification, meaning at least 90% of rental profits are distributed to shareholders.
• A focus on the defensive healthcare property market.
• Tenants that are tied down on long, multi-year contracts.
• Tenancy agreements backed by government bodies (like the NHS).
• Index-linked rents that protect against rising inflation.

City of London Investment Trust benefits from:

• A focus on the dividend-heavy London stock market (95% of its holdings are UK shares).
• The trust’s ability to retain up to 15% of income in ‘good’ years, allowing it to grow dividends even if underlying holdings freeze or cut theirs.
• A portfolio dominated by financially robust FTSE 100 companies with proven business models.
• Diversification across 77 companies spanning different industries.
• Limited gearing, which helps keep borrowing costs down.

Growth AND yields

Finally, dividends at Rathbones are supported by the asset manager’s:

• Reliable recurring management fees.
• Strong record of customer retention.
• Robust balance sheet (its CET1 ratio is currently 17.4%).
• Increased scale, following the acquisition of Investec Wealth & Investment.
• Exposure to the growing asset management sector.

How have these qualities boosted their dividend performance over the years? Let’s take a look.

During the last decade, dividend yields have comfortably beaten the FTSE 250 long-term average of 2.5% to 3.5%. What’s more, each of the three companies has overcome issues like soaring interest rates, the pandemic, and a weak UK economy to keep raising shareholder payouts.

So what next?

The question is, can these dividend heroes keep on delivering? With Primary Health Properties, earnings and dividends could suffer if the NHS reduces support for primary healthcare.

City of London might disappoint if financial services companies — which make up a large proportion of the trust — come under pressure. And dividends at Rathbones could eventually stop growing if competition in the asset management sector continues to rise.

That said, any dividend share presents risk to investors. And taking everything into account, these three FTSE 250 stocks are among the UK stock market’s most reliable passive income stars. I think they’re worth serious consideration for a long-term income portfolio.

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But while City of London is well-known – its market capitalisation of £2.8bn earns it a place in the FTSE 250 index – its long-term record of regular dividend growth is not unique.  

Bankers Investment Trust and Alliance Witan have been increasing their dividends annually for just as long as City of London has.

A number of other shares, from F&C Investment Trust to Scottish American Investment Company, have increased their payout per share for north of half a century.

There’s a common theme here

There are some operating businesses that have an equally impressive track record. Industrial manufacturer Spirax Group, for example, has also grown its dividend per share each year for over half a century.

But what is immediately noticeable about the shares I mentioned above is that they are investment trusts, not operating companies.

Even the best-run company can suffer during periods of economic downturn. That often leads them to reassess their spending priorities. Dividends – which are never guaranteed for any share – can be cut as a consequence.

By contrast, investment trusts are typically firms with few employees and no operations beyond running the trust: they mainly own shares (or other assets).

That matters in this context because it means that they do not face the immediate financial pressure an operating company might do during tough times, with customers cancelling orders and suppliers suddenly hiking prices.

No share is risk-free

Still, while I see that as an advantage, it does not mean that an investment trust will be unaffected if the economy is weak.

Its own shareholders may sell, pushing down its share price. Its income streams could suffer if shares it owns cut their payouts.

At the moment, for example, City of London’s 10 biggest holdings include HSBC, Shell, Natwest Group, Imperial Brands and BP. They all cut or cancelled their dividends during the 2020 stock market crash.

Long-term income potential

So, how has City of London – like some rivals – managed to keep growing its own dividend like clockwork?

That reflects the trust management’s choice of where to invest. The trust currently holds stakes in close to 80 different companies. That level of diversification can help it weather the storm even when some of its larger stakes cut their dividends.

The shares it owns I mentioned above are all blue-chip FTSE 100 members and reflect City of London’s strong focus on big, proven UK businesses. That is not limited to the main index, though. City of London also owns stakes in some FTSE 250 enterprises such as ITV and Victrex, currently yielding 6.2% and 9.7%, respectively.

Such reliance on UK companies brings a risk that if the British market does badly, City of London’s income streams could fall. That is a risk to the dividend.

From a long-term perspective, I see it as a stock for investors to consider.

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Take City of London Investment Trust (LSE:CTY), Alliance Witan (LSE:ALW), and Scottish Mortgage Investment Trust (LSE:SMT). Collectively, these trusts have raised dividends every year for 161 years. But what makes them specifically such impressive income generators?

City of London – 59 years of dividend growth

City of London Investment Trust has grown dividends every year since the mid-1960s. How? By focusing on UK blue-chip shares, which themselves have some of the best dividend records on the planet.

In total, this trust owns shares in 78 companies, of which its largest holdings include HSBC, BAE Systems, Unilever, and Shell. As this list shows, these are companies with diverse revenue streams, robust balance sheets, and market-leading positions, all of which lead to reliable dividends over time.

By far, City of London’s largest exposure is to financial services. Around 33% of it is tied up in this sector, which can make returns a little more vulnerable during economic downturns. Still, this hasn’t derailed the trust’s progressive dividend policy yet.

The forward dividend yield here is 3.8%.

Alliance Witan – 59 years of dividend growth

Alliance Witan also has almost six decades of consistent dividend growth under its belt. Like City of London, it is also well diversified by sector, with exposure to financials, IT, healthcare, telecoms, and consumer goods among others.

In fact, it holds shares in 229 different companies. And what I especially like is that these can be found all over the globe, including the UK, Europe, Asia, and the US. A higher weighting towards New York-listed shares (66% of the portfolio) does create more concentration risk than a more equally distributed portfolio, however.

The forward dividend yield is a handy rather than spectacular 2.2%, which reflects a high concentration of growth shares like Microsoft and Nvidia. However, that focus on dividend growers over high yielders means investors have enjoyed strong share price gains alongside a rising passive income.

Scottish Mortgage – 43 years of dividend growth

Scottish Mortgage Investment Trust also allows investors to enjoy the best of both worlds. Annual dividends have risen every year for almost half a century. Meanwhile, its share price has risen at an average yearly rate of 18.7%.

It’s been able to achieve this by focusing on high-growth technology shares, 102 in total. It has holdings in both private and publicly listed companies like SpaceX, TSMC, Amazon, and Meta, allowing it to harness white-hot tech trends including AI, e-commerce, and robotics.

Can it continue delivering? I’m confident it can as the digital revolution rolls on. Remember, though, that its focus on one sector creates some additional risk. The forward dividend yield here is 0.4%.

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For a SIPP in particular, I reckon most of us want to minimise stress. And I like to look for the kinds of investments we can sit back and forget. But what might they be?

I think investment trusts can fit the bill quite nicely. And in particular, I favour one specific group of them.

Dividend Heroes

The Association of Investment Companies (AIC) maintains a list of those boasting at least 20 consecutive years of dividend raises. It calls them ‘Dividend Heroes’ and a number of them have achieved some quite remarkable feats.

City of London Investment Trust (LSE: CTY) and Bankers Investment Trust (LSE: BNKR) are among the leaders of the pack. They’ve both increased their dividends for a stunning 59 years in a row, without missing a single year.

What do they do?

Both aim for a combination of long-term capital growth and dividend income. The only real difference is in the stocks they buy and hold.

City of London puts its shareholders’ money mainly into companies on the London Stock Exchange. And note I say shareholders, not customers. That’s right, we don’t hand over our cash for them to manage — and use to prioritise their own profits, like some other kinds of pooled investments. No, instead we buy shares directly in the investment trust, which itself is a company listed on the stock market. That way, the profits for the company owners come to us… because that’s who we are.

City of London’s top 10 holdings include HSBC Holdings, Shell, BAE Systems, Tesco… And that immediately gives us a nice bit of diversification with a single investment. And that’s probably the single most effective way to minimise the pain of stock market volatility. Of course, if the whole market is down we should still see the trust’s share price fall. But it’s almost certainly to be less than the worst-affected stocks.

Wider outlook

Moving to Bankers Investment Trust, the outlook there is global, with a heavy American focus. Its top holdings include Nvidia, Amazon, and Apple. That does bring some risk of AI exposure, admittedly. But only around 12% of the trust’s cash is in these three. And JPMorgan Chase is in the top 10 too.

US stocks account for round two-thirds of Bankers’ total investments. And US markets do tend to lead the rest of the world in volatility. But it’s also the country that’s led worldwide stock market tables for decades. And I can’t see that changing any time soon.

Bankers has managed an average annual return of 11% since 2015, largely through the strength of American investments.

A good start

As well as general stock market risk, I reckon any failure to raise the annual dividend from either of these could trigger a share price dip. But considering them as a base for a SIPP, I really think they can bring better peace of mind than starting with — and worrying about — individual stocks.

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Dividends are never guaranteed, so it pays to manage risks by diversifying the portfolio properly and carefully assessing shares before purchasing them. Still, this could be a simple and fairly lucrative scheme, depending on how much someone invests.

Cutting your coat according to your fabric

How big the second income might be depends on a few factors. In short, those are the size of investment, what the average dividend yield is, and how long someone waits.

Let’s examine each in turn.

Size of investment: suit yourself

Investing in the stock market is a flexible activity that can be tailored to an individual’s circumstances.

That might involve a lump sum, for example, or it could be regular investing. It might even be irregular investing, drip feeding spare money in as and when you have some.

Dividend yield: a helpful financial measure to understand

The second factor that determines the income is dividend yield. Basically that is the annual dividends earned, expressed as a percentage of the cost of the shares. For example, a 5% yield means for each £100 invested, the annual dividends will hopefully be £5.

Stockbroking costs can eat into the second income, so it pays to weigh different options when choosing a share-dealing account, Stocks and Shares ISA or trading app.

Time: the friend of the savvy investor

The third factor is time. For example, let’s stick with the 5% yield. That is well above the current FTSE 100 yield of 3.1%. Nonetheless, I think it is possible while sticking to blue-chip companies.

With a monthly second income target of £500 (£6k a year), a 5%-yielding portfolio would need to be worth £120k to hit the goal.

An alternative approach is initially reinvesting dividends before drawing the income. This is known as compounding. From nothing, someone investing £1k a month and compounding it at 5%, the portfolio would grow to £120k in under nine years.

Choosing income shares with long-term potential

When I look for a share (because I want to build income streams), I do not just look at its current yield. That is a snapshot of current performance and changing business performance could mean future dividends (if any) are different. So I look at how strong the business seems and what its future prospects may be.

For example, one dividend share I think investors should consider is City of London Investment Trust (LSE: CTY). By investing in a carefully selected group of leading British shares, the trust has been able to grow its dividend annually since the 1960s.

Over the past five years, there has also been good news in terms of share price performance. The 45% gain is below the 53% achieved by the FTSE 100 during that period. But I still see it as a strong result.

Sticking mostly to British blue-chips, the trust exposes itself to the risk that a weaker UK economy could hurt its performance. But it is also exposed to a well-established market where some companies sell at attractive valuations.

That could help provide long-term capital growth, as well as the prospect of juicy dividends.

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But all this Stocks and Shares ISA stuff is complicated, right? And who has 20 grand to stash away? Well, it’s actually quite straightforward. Here are three key steps.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Step 1: pay in some cash

Opening an ISA online is fairly easy these days. Just head over to your online ISA provider of choice — and all the ones I’ve looked at have clear instructions to follow. They accept one-off transfers, or monthly direct debits from as little as around £25.

And we really don’t need a lot to get started. Maybe just £25 each month, and top up whenever we have spare cash. Even that could build to a significant pot over the long term.

There’s no need to buy shares by any deadline. So we can leave the cash there as long as we like, until we know what we want to buy. The time limit for the £20,000 applies only to money paid in, not actually invested in shares.

Step 2: decide on a strategy

What about an investment strategy? Tech growth shares have been making great strides. But falls in the past few months have highligted the potential danger too. AI chip leader Nvidia, for example, has dipped 19% since October.

The FTSE 100 has some tempting dividend shares. Legal & General tops the list with a forecast 8.6% yield — although that’s not guaranteed, so there’s different risk there. Reinvesting dividends in more shares could build up to a decent passive income pot over the years.

Daily at The Motley Fool, we publish a number of free-to-read articles. Each covers at least one stock to consider. Investors could do worse than reading them to get a feel for which kind of companies they might like.

Just remember one vital part of any strategy. Diversification across different companies and different sectors is essential. Spread out, the chances are that fewer eggs will be broken if the market drops a basket.

Step 3: buy something!

Buying our first share can be an exciting moment. And there’s a class of stock that I think can help with our strategy. They’re investment trusts like The City of London Investment Trust (LSE: CTY). This one holds a range UK stocks, aiming for long-term income and capital growth.

It picks a range of different companies, which we can them explore to help decide on a longer-term strategy. And it provides much-needed diversification in one go. Its top 10 include HSBC Holdings, Shell, BAE Systems… and a variety of others.

The trust has raised its annual dividend (currently at an estimated 3.9%) for 59 years in a row. That does highlight a risk, as I’d expect the share price to fall should the dividend fail to grow one year. And even a diversified investment like this can’t avoid a general stock market slump.

But I think this — or a similar investment trust — is one every new ISA investor aiming for passive income should consider when starting out.

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On paper, targeting £2,400 a year in income from that amount implies a 12% yield.

The problem is that a 12% sustainable income return is extremely rare in today’s market. Where it does exist, it usually comes with significantly higher risk than most long-term investors would accept.

So while the £2,400 figure can be a useful goal, it is not something that can realistically be generated from £20,000 in a single year. Not without taking on considerable risk.

A more practical approach is to treat it as a compounding target. One built over time through reinvested dividends, capital growth, and gradual portfolio expansion.

In that context, the question isn’t whether £20,000 can generate £2,400 immediately, but how it can be structured so that income steadily grows towards that level in a sustainable way.

With that in mind, here’s how a £20,000 ISA portfolio could be structured to focus on building sustainable long-term income.

Core holding

One of the longest-held positions in my ISA portfolio is insurance group Aviva (LSE: AV.). The recent market sell-off has pushed its dividend yield up to around 6.6%, but that isn’t the main reason I hold it.

As the UK’s largest general insurer and a growing wealth business, Aviva generates relatively stable cash flows from premiums and long-term savings products, which supports its ability to return capital to shareholders.

The attraction here isn’t just income, but the durability of the business model. Insurance companies don’t rely on rapid growth. Instead, they depend on disciplined underwriting, cost control, and consistent capital generation over time.

The key risk remains exposure to economic cycles and investment market volatility, which can affect returns. However, over the long term, it is precisely those investment returns that underpin both dividend growth and shareholder payouts.

Dividend workhorse

To complement individual equities, I also own a number of investment trusts, including The City of London Investment Trust (LSE: CTY), one of the UK’s longest-running dividend-focused investment trusts.

Its strategy is straightforward: invest in a diversified portfolio of established UK companies and prioritise consistent, growing income over time. That includes major dividend payers such as HSBC, Shell, Tesco, and Legal & General, alongside financials like Lloyds and NatWest.

What makes it attractive is its track record of increasing dividends through multiple market cycles, which helps smooth income generation inside an ISA.

The trade-off is that it remains exposed to the UK market and broader economic conditions, meaning capital values can fluctuate even if income stays relatively resilient.

Building a second income over time

Together, these two holdings show how I’d approach building a second income within a Stocks and Shares ISA. Aviva provides a core source of relatively stable cash generation, while the City of London Investment Trust adds diversification and a long track record of growing dividends.

Importantly, this isn’t about generating £2,400 overnight. It’s about building a portfolio that can steadily increase its income over time through reinvestment and disciplined stock selection.

In that sense, the ISA becomes less about chasing yield and more about creating a resilient income stream that can grow year after year.

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So, say someone had a bit under £400 and wanted to start investing before April. That basically means over the next couple of days!

Could they do it – and how?

Investing on a tight budget

£380 is certainly enough to begin buying shares.

In fact, I think it can be better to start investing on a small scale than waiting for a long time to save up lots of money to do it.

But one thing to watch out for is the impact of dealing fees and costs. Sometimes they have a minimum amount. When investing a modest amount, that can have a disproportionate effect.

So it pays to shop around when looking for a share-dealing account or trading app.

A Stocks and Shares ISA needn’t take £20,000

Or, come to that, a Stocks and Shares ISA.

A lot of discussion about them focuses on the idea of investing £20k, because that is the standard annual contribution allowance.

But that does not mean an ISA might not also be useful for someone who wants to start investing with a few hundred pounds.

With this year’s allowance deadline fast approaching – it falls a week today, on 5 April – now could be the perfect time to think about that.

Learning about the market and setting an approach

A new investor should also get their head around some basic but important stock market concepts, like how to diversify a portfolio and why valuation matters when considering shares.

I think one mistake some people make when they start investing is not having a plan. The plan can change over time, but I think it is important at least to have one as a starting point.

For example, is the objective capital growth, dividend income, or both? What risk tolerance is the investor happy with? How will they decide not just when to buy a share but also when to sell it?

One share to consider

As a new investor, It can be difficult to stay grounded when setting expectations. But I think it is helpful to be modest and not too ambitious, hoping for a decent return over the long term rather than a quick, spectacular return.

No share is guaranteed to perform, of course. But one of the reasons I think City of London Investment Trust (LSE: CTY) merits consideration by investors is the fact that the pooled investment vehicle aims to own a carefully selected portfolio of blue-chip British shares.

That means that, over time, it ought to perform broadly in line with the UK economy. Of course, that also brings the risk that when the British economy performs weakly or UK stock market tumbles, the share could lose value.

Another thing I like about City of London is its commitment to dividends.

Again, no company’s dividend is ever guaranteed to last. But the shareholder payout is clearly a priority for the investment trust’s directors. Indeed, the dividend per share has grown each year since the mid-1960s.

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Should I dump everything and sit on cash for a few months? Nope, not a chance. And I’ll tell you something else I’m not going to do — panic! We need to keep things in perspective.

Despite what’s already happened over Iran, the FTSE 100 has only fallen around 4.5% since its recent peak. And ‘Footsie only down a little bit from all-time high’ really isn’t the kind of headline to strike fear in investors’ hearts, is it?

I mean, a crash is technically a 20% fall. And we’re not remotely close to that. In fact, I’d say the modest decline underscores the resilience of the UK stock market.

US optimism

What about over in the US? Well, Goldman Sachs has just predicted corporate earnings could push the S&P 500 to around 7,600 by the end of 2026. They didn’t mention the war.

I think a stock market crash any time soon is unlikely.

Now, I’ve been wrong about the stock market before, and I’ll be wrong again for sure. But most people tend to be wrong about half the time — that’s how guesswork goes. And when everyone is scared of a crash… that’s when they tend not to happen.

I reckon another stock market crash before I retire is likely. I just have no idea when. So even if I might not expect my stocks to fall next week, how am I prepared for whenever the next slump might be?

Diversify

I have City of London Investment Trust (LSE: CTY) as a cornerstone of my Stocks and Shares ISA. And that helps in several ways. It gives me some welcome diversification from just a single purchase. It holds Unilever, BAE Systems, AstraZeneca, Tesco… and a whole lot more.

I also rate a good few of its holdings as defensive, with decent safety and not expected to be too volatile.

The dividend helps too, with a 3.8% yield expected. That’s not huge. But the investment trust has raised its dividend every year for 59 years. And the way investment trusts are structured, they can do that even in down years.

The biggest risk I see at the moment is the trust’s share price climb — it’s up 37% in just the last two years. I suspect that, in part, is due to investors moving cash to what they see as a relatively safe investment in troubled times. And when bullishness returns to the stock market, maybe it’ll reverse a bit.

Take the cash

But dividends have kept me smiling through previous downturns, and I’m sure they’ll do it again. Who really cares where our share prices go in the short term if they’re generating steady streams of cash for us?

So keep our eyes on the long term, and consider holding a diversified UK investment trust like City of London — that’s my stock market crash strategy.

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Here’s how.

Slow and steady, with some help from HRMC

That sum is based on compounding at 5% annually. That compound growth could come from either dividends or share price growth, or a combination of both.

Now, share price declines could eat into the growth rate. Clearly, it is important to take time when building a diversified portfolio of blue-chip shares.

Still, on a 20-year timeframe – even recognising the likelihood of market downturns during that period – I see that 5% goal as a realistic one.

By the way, like I said, the sum presumes a monthly contribution of £2,464.

But bear in mind that, thanks to tax relief, a basic-rate payer could put around £1,972 per month into their SIPP and the exchequer would automatically top it up to £2,464.

Higher and additional-rate taxpayers are entitled to even more tax relief, albeit the process is more convoluted for them.

But that means that, for them, a much smaller monthly contribution would be transformed into £2,464 thanks to tax relief.

Quality and a long-term perspective

All things considered, I do no think this approach to having a seven-figure SIPP at 60 is complicated.

It requires consistency, a long-term perspective, and building a portfolio of shares that strike the right balance between potential reward and risk. With a 5% compound annual gain target I do not think that needs to be very racy. 

Instead, I think it can allow for a conservative approach to risk management.

1966 and all that

As an example, one share I should consider is City of London Investment Trust (LSE: CTY).

This FTSE 250 investment trust has a history that stretches back to the 1860s. Its current run of annual increases in the dividend per share started in 1966.

It may seem like an eternity since England last won the World Cup – but the trust’s shareholders have been getting a bigger payout per share every year since then!

At the moment, the yield is 3.7%: above the average for the FTSE 100 index, which is home to most of the trust’s holdings, such as HSBC, Shell, and Natwest.

3.7% is still below the 5% target I mentioned above, but recall that includes price moves too.

The City of London Investment Trust share price hit a new all-time high last week. It has gone up 65% over the past five years alone.

That is close to the 68% gain of the FTSE 100 over that period. The trust’s focus on leading British blue-chip shares helps it benefit from well-known UK shares doing well, but at the risk that it will also likely suffer when the FTSE 100 does poorly.

Past performance is not necessarily a guide to what will happen in future. But while City of London Investment Trust might not be the most exciting share on the London market, I expect it will likely be here for a long time yet – and hopefully still raising its dividends like clockwork.

As for when England will likely next win the World Cup, well…

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