Equity Income  

The top yielding equity income trusts

The top yielding equity income trusts

Some 23 equity trusts currently have a dividend of 4 per cent or higher, according to research.

The majority of the trusts offer UK investors exposure to overseas markets as an alternative to the UK, according to investment bank Stifel.

The top trusts include a number of long-established trusts, such as Merchants Trust and JPM Claverhouse as well as a number of trusts with exposure to Asia.

Three trusts included in the list have a market cap of over £1bn, which are the City of London, Murray International and Blackrock World Mining trusts.

Trusts primarily investing in equities with a dividend yield of 4 per cent and above

TrustDividend Yield (per cent)Market Cap (£m)Discount (per cent)
Henderson Far East Income7.9450prem. 0.8
BlackRock Latin American6.313111
Aberdeen Standard Equity Income6.01667
Henderson High Income5.92164
BMO UK High Income5.6806
European Assets5.45236
Value & Indexed5.310314
Shires Income5.1815
Merchants Trust5.06791
City of London4.91,742prem. 0.8
Murray International4.81,4335
Majedie4.712915
Lowland4.63539
Invesco Asia4.52418
JPMorgan Japan Small Cap Growth & Inc4.42838
JPMorgan Asia Growth & Inc4.34412
Schroder Income Growth4.2213prem. 1
JPMorgan China Growth & Inc4.24533
Aberdeen Asian Inc4.139613
JPMorgan Claverhouse4.1448prem. 0.5
BlackRock Energy & Resources Inc4.11147
JPMorgan Russian4.135011
BlackRock World Mining4.11,0102
Source: Datastream. Excludes trusts with market caps below £80m for liquidity reasons

Five of JP Morgan’s trusts appear on the list, including its Japan Small Cap Growth & Inc trust, which has a dividend yield of 4.4 per cent, and its Asia Growth & Inc and China Growth & Inc trusts. 

The top yielding equity trust is currently Henderson Far East Income, with a dividend yield of 7.9 per cent. The trust invests in the Asia Pacific region and is managed by Michael Kerley and Sat Duhra, and has a market cap of £450m. It is currently trading at a 0.8 per cent premium.

Blackrock’s Latin American equity trust is second on the list, with a 6.3 per cent dividend yield. The trust is significantly smaller than Henderson’s, with a market cap of £131m, and its managers are Ed Kuczma and Sam Vecht.

The authors of the report, Iain Scouller, Anthony Stern and Sachin Saggar, said for those investors prepared to take equity risk, the yields on these trusts may be attractive in the current low interest rate environment.

They added: “Many of these trusts have meaningful revenue reserves, which can be drawn on to maintain or increase dividends at times when there are dividend cuts at the portfolio companies in which they invest.

“These reserves can be used to smooth out dividends if necessary, and 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 and open-ended funds, which do not maintain reserves.”

Dividend payments were slashed in 2020 as firms shored up cash amid the pandemic uncertainty.

But throughout the pandemic investment trusts have proven resilient. 

In the 18 months between January 2020 and July this year, Link Group’s index of UK dividends fell by 34.6 per cent on an underlying basis, with global dividends dropping 5.9 per cent.

Link calculated that if this was replicated across the investment trust sector, dividends would have fallen by almost a fifth, but in reality payouts rose 2 per cent instead.

sally.hickey@ft.com