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analysts highlight diverse investment company options

Investment trusts have the ability to reserve up to 15% of their income each year

With dozens of companies cutting or suspending dividends and interest rates remaining near all-time lows, income hunters should not ignore the unique attractions of investment trusts.

Investment companies have the ability to reserve up to 15% of their income each year, which has helped them to carry on raising dividends through such intense market downturns as the 1987 crash, the dot com bubble bursting and the financial crisis. 

Companies in the UK equity income, global and global equity income sectors are particularly well known for this, and dominate the AIC’s list of ‘dividend heroes’.

However, these are not the only sectors generating healthy yields and reliable income streams, The Association of Investment Companies found from investment company analysts as they shared which other investment company sectors they consider for income.

READ: Dividends are for life, but if not then maybe look at China

Anthony Stern, analyst at Stifel, said: “We think the Asia Pacific Income funds offer a different source of income. Asia was the region first into the COVID-19 crisis and the first out. The Asian funds offer dividend yields of 5% or more and these dividends are fully covered by revenue income, unlike some trusts in the investment company world. The funds have been recognised for increasing their dividends over the long term and are part of the AIC’s next generation of dividend heroes. All of the funds have substantial revenue reserves which should allow them to maintain their dividends through their lean times.

“Aberdeen Asian Income (LON:AAIF) is clearly the value play in the sector at a 13% discount and offering a 5.5% dividend yield. Schroder Oriental Income (LON:SOI) has been managed since inception by the highly experienced Matthew Dobbs. It has one of the best track records of the Asia Pacific Income funds on a total return basis and offers a dividend yield of 5.3%.”

Anthony Leatham, head of investment trust research at Peel Hunt, said: “Outside of UK and Global Equity Income, there are a number of sectors and regions that offer attractive yields. We would highlight the differentiated equity income story in Japan. Richard Aston has been manager of CC Japan Income & Growth Trust (LON:CCJI) since its launch in December 2015, boosted by the focus on shareholder return from Abenomics. CCJI currently offers a yield of 3.8% and an unconventional sector mix versus other developed market equity income strategies.

“Healthcare has historically been a valuable source of equity income for investors. However, this can be at the expense of capital growth. BB Healthcare Trust () pays its dividend out of capital and currently offers a yield of 3.0%. The benefit of this approach is that it allows the managers to adopt an unconstrained and high conviction approach, without being tied to the high-yielding, often ex-growth stocks…

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2020-06-05 12:02:00

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