The number of equity trusts with a yield of at least 4 per cent has dropped to just 14 in three months, according to analysis from Stifel.
Investment trusts generating a yield of 4 per cent or more now stand at 14, a decline from the 19 trusts recorded back in May.
Iain Scouller, analyst at the investment banking firm, said the spike in share price increases after the EU referendum has led to a decline in dividend yields.
Looking specifically at trusts with a market cap of at least £80m, Mr Scouller said two BlackRock trusts had flagged dividend cuts in the current year, these include the asset manager’s Commodities Income and World Mining vehicles.
Dividend cuts to the mining trust is said to reflect cuts in payouts at the underlying mining companies.
Yet despite the dividend cut, the yields for the two trusts are expected to be in excess of 4 per cent because - according to the Stifel analyst - they are supported by revenue reserves if income alone doesn’t suffice.
Mr Scouller said these 14 trusts, listed below, could benefit investors who are prepared to take equity risk, particularly in this “lower for longer” interest rate environment.
| Historical dividend yield (%) | Market cap (£) | |
| 1. BlackRock Commodities | 8.2 (prospective 6.8) | 86 |
| 2. European Assets | 7.4 | 356 |
| 3. BlackRock World Mining | 6.9 (prospective 5.2) | 535 |
| 4. 4 Henderson Far East Income | 5.9 | 383 |
| 5. Merchants | 5.7 | 462 |
| 6. Dunedin Income Growth | 4.8 | 360 |
| 7. Murray Income | 4.4 | 487 |
| 8. Aberdeen Asian Income | 4.4 | 366 |
| 9. Murray International | 4.4 | 1,365 |
| 10. Value and Income | 4.3 | 110 |
| 11. JPMorgan Global EM Income | 4.3 | 339 |
| 12. BlackRock Latin American | 4.1 | 156 |
| 13. Schroder Income Growth | 4 | 177 |
| 14. City of London | 4 | 1,304 |
Mr Scouller said: “While dividend cuts cannot be ruled out in the UK equity sector in the next year, we do think that by using revenue reserves, these investment trusts should be able to deliver a more robust level of dividend than similar unit trusts which do not maintain reserves.”
Ben Yearsley, investment director at the Wealth Club, said it is unsurprising yields have dropped.
“2016 is not looking like a great year from a dividend growth perspective, and it is only the fall in sterling that has saved the dividend picture.
“This means short-term prospects are lacklustre, however, over the long-term one of the points of equities, and the equity income sector for example, is to be able to grow dividends and at least keep pace with inflation.
“Investors who already own equities shouldn’t be concerned as their capital value has risen, but new investors are in a trickier position,” he said, adding the alternatives are limited when a large part of the market has gone up.
Mr Yearsley added: “At some point the market will pause for breath, creating a buying opportunity.”
katherine.denham@ft.com
