Jeff Prestridge  

Investment trusts offer sought-after income

Jeff Prestridge

Jeff Prestridge

One small oasis of income opportunity in the equity world remains, although even this will not survive a permanent dividend drought.

I am referring to those income-orientated investment trusts that over the years have built up income reserves for times just like these.

Reserves that they can now draw upon to boost the dividends they make to investors.

A fascinating piece of recent research by investment trust boffins at Investec Securities indicated that all 17 UK equity income investment trusts could withstand a 30 per cent cut in the dividend income they receive from their holdings – and still pay a dividend next year to their shareholders 3 per cent higher than this year.

Even if the 30 per cent dividend cut across UK plc was repeated next year, Investec says that eight of these 17 trusts could still increase their own dividends by another 3 per cent – albeit by almost depleting their reserves.

All rather reassuring, although the 30 per cent dividend reductions could be underestimates, given Link’s rather sombre analysis, published after Investec’s work.

Financial advisers do not seem to have the same affinity for stock market listed investment trusts as they do for unit trusts and open-ended investment companies.

Maybe that harks back to a past when unit trust companies were happy to pay advisers an upfront commission every time they placed a client’s money with them.

So, maybe, it is time to embrace investment trusts in clients’ portfolios.

They will not fill the income gap left by the decimation of the company dividend, but they will help prevent the gap becoming a chasm.

Stay safe, readers.

Jeff Prestridge is personal finance editor of The Mail on Sunday