Persistently low interest rates have made income tough to come by in recent years. However, some investors are more willing to take a punt on riskier equities — especially those offering attractive dividend yields and capital growth.
With this in mind, I’m taking a look at two discounted investment trusts with yields of more than 4%.
Canadian equity income
Investing in high yielding stocks is a popular way to add yield to your portfolio and there are many UK equity income funds on offer for investors who don’t want to do a lot of analysis and pick individual stocks. But instead of just investing in the UK, why not consider diversifying your portfolio by investing in foreign equities as well?
Canada is a great country, and it’s home to many high-yielding financial and natural resource stocks. But Canada gets very little press here in the UK, which makes investing there a daunting challenge. As such, investing in an actively managed fund such Middlefield Canadian Income Trust (LSE: MCT) would be a whole lot simpler.
The fund invests primarily in a broadly diversified portfolio of Canadian-listed dividend stocks, although it does also holds some US and international stocks too. Top holdings include The Blackstone Group (5.1%), National Bank of Canada (4.4%), Vermilion Energy (4.3%), Bristol-Myers Squibb (4.3%) and Pembina Pipeline Corporation (4.3%).
The trust has delivered market-beating returns, with a five-year cumulative NAV performance of 40%, which compares favourably to its benchmark S&P/TSX Composite High Dividend Index performance of 35% over the same period. Despite this, shares in the investment trust trade at a 10% discount to its net asset value (NAV), meaning investors can effectively purchase its assets for less than the sum of its parts.
However, it’s important to be wary about the fund’s outsized exposure to the real estate sector, which accounts for 22.1% of its portfolio allocation — against just 11.9% in the benchmark index. This exposes investors to a potential bubble in the overheated Canadian market.
Shares in Middlefield Canadian Income Trust currently yield 5%
The City Natural Resources High Yield Trust (LSE: CYN) is another investment trust that offers a market-beating dividend yield. The firm invests in a portfolio of mining and resource equities and loans with the aim to generate capital growth and income for shareholders.
As it flies relatively under the radar, the shares look cheap, offering a discount to its NAV of 14% at the time of writing. However, this is probably not a trust that’s suitable as a cornerstone position in any investment portfolio, as it’s focused primarily on the mining and energy markets.
Nevertheless, with many stocks in these sectors offering attractive dividends, the trust offers investors a tempting dividend yield of 4.8%. This means that although it isn’t suitable for everyone, it could be a useful addition for investors seeking more exposure to natural resource sectors and higher yields.
The fund’s two biggest positions are zinc-focused Trevali Mining (8.7%) and copper miner First Quantum Minerals (5.8%).