When it comes to dividends and building a sustainable income stream for your portfolio, investment trusts are an invaluable tool. These vehicles allow you to buy a pre-built income portfolio and, because there’s usually an experienced manager at the helm, you can buy and forget these assets and watch the income accumulate.
Half a century of increases
A great example is the Brunner Investment Trust (LSE: BUT). This investment group, which reported its results for the year to the end of November this morning, has paid a dividend to investors for 46 years and it has increased the payout every single year. Today management continued this record, announcing a 4.4% increase in the total payout for the year to 16.5p, well covered by earnings per share of 18.4p. The increase, coupled with the firm’s record of steady payout growth, shows how valuable investment trusts can be for income investors seeking a steady income that’s growing in line with inflation.
The full-year distribution suggests a dividend yield of 2.2% which is hardly high-yield territory, although I believe that the record of payout increases more than makes up for this.
Brunner is well diversified with three of its top five holdings based in the US and more than two-thirds of its holdings being international securities. Also, the management fee is a relatively attractive 0.8% per annum, and the shares trade at a 9.9% discount to net asset value. Overall then, I believe Brunner, with its low management fee, international diversification and a near 50-year record of steady dividend increases, is an excellent investment for investors looking to protect their portfolio in the current environment.
Student income
Another income investment I’m positive on the outlook for is Empiric Student Property (LSE: ESP). Strictly speaking, this is not a pureplay investment trust. It is a real estate investment trust which is virtually the same apart from its requirement that the majority of its income must be derived from property.
Unfortunately, of late the company has had to curtail its expansion plans after several years of rapid growth have resulted in a bloated cost structure. However, management is now taking actions to reduce costs, and according to a trading update published today, administration costs for the second half of 2017 were reduced by 21% from the first half. Meanwhile, bookings for its student accommodation properties are now at 40% for the 2018/19 academic year, which is “significantly ahead of last year.“
Management also noted in today’s trading update that the value of the group’s property portfolio was £890m at the end of December, up by 23.4% for the year. Based on the last reported net asset value, the shares are trading at only 0.95 of tangible book value.
City analysts are expecting the trust to announce a dividend of 5.55p per share for 2017 and 5p for 2018, giving a forward dividend yield of 6%, nearly double the market average.
All in all, Empiric offers a defensive income stream from property, trades at a discount to its net asset value and the trust’s dividend yield is a healthy 6%. This is why I believe that if you are looking for income, this company will make a great addition to your portfolio.
