Income and growth
It offers the perfect blend of income and growth for investors. At the time of writing, its shares support a dividend yield of 5.1% and over the past five years have produced a return of 65%, excluding dividends.
Today, the company reported its results for the first half ending 31 July, revealing yet another impressive performance. For the first half Merchants’ total net asset value grew by 9.9% and management increased the dividend payout by 2.5% to 12.3p
I believe Merchants is one of the best and simplest investment trusts around. The company invests in a portfolio of high-yield UK shares, which generate dividend income. This revenue funds the investment trust’s dividend. To help boost returns, it can borrow money and at the end of the first half, long-term debt was £76m. During the first half, this borrowing had a gross beneficial effect on performance of 2.6%, or a net effect of 1.5% after the 0.9% cost of finance and the movement in the market value of debt of -0.2%.
All in all, I believe that if you’re looking for a low-cost income fund, you can’t go wrong with Merchants. The firm’s portfolio is populated with UK dividend champions such as Royal Dutch Shell, GlaxoSmithKline, and HSBC. Meanwhile, the management fee is a relatively low 0.47%.
At the time of writing, the shares trade at a 6.1% discount to net asset value, indicating that at this moment, you can buy the trust and its portfolio of high dividend stocks below market value. I believe that this is a highly attractive opportunity.
Witan Investment Trust (LSE: WTAN) is much more complicated than the smaller trust. Unlike its income-focused peer, Witan’s management team targets the best returns in all market environments. The portfolio is well diversified with the top five holdings including shareholdings in two private equity firms, a mining fund, the London Stock Exchange and US banking giant JP Morgan. This diversified approach has helped the trust produce a return of 130% for investors, excluding dividends, over the past five years.
When it comes to income, Witan offers a token dividend yield of 2.01%. However, this payout, coupled with the firm’s strong capital growth over the previous five years, is attractive. I believe that there’s also room for dividend appreciation.
With an annual management fee of 0.75%, Witan is relatively expensive and is currently trading at a tiny discount to net asset value of 1.2%. Still, even though these metrics are disappointing, the trust’s capital growth and diversification more than make up for the high fees in my view.
The bottom line
All in all, if you’re looking for two ready-made income and growth portfolios, then it looks as if Witan and Merchants tick all the boxes as funds that will allow you to sit back, relax and watch your wealth grow.