The Mercantile Investment Trust (LSE: MRC) is one of my favourite trusts. This firm is focused on finding top UK growth stocks, small and mid-cap companies that are leaders in their respective sectors thanks to a prevalent competitive advantage.
Mercantile has a solid record of achieving this goal. Over the past decade, the trust’s net asset value has grown by 205%, outperforming its benchmark by 15% over the same period. This return shows portfolio manager Martin Hudson, who’s been at the helm since 1994, knows a thing or two about picking stocks.
And one of the primary reasons why this trust, rather than any of its peers, occupies a significant percentage of my portfolio is the fact that it only charges 0.45% per annum to manage investors’ money — that’s less than half of the UK average fund fee of 1.13%.
What’s not to like?
Unfortunately, the one downside about the Mercantile trust is its current lack of yield. The stock supports a dividend yield of 2.3%, paid quarterly. Still, a low yield is more reflective of the company’s high allocation to small-caps, which tend to reinvest cash back into the business rather than paying it out to investors. What’s more, with capital growth averaging 17% per annum since 2009, I’m not overly concerned about the lack of yield.
At the time of writing, shares in the Mercantile trust are trading at a 9.5% discount to net asset value.
If it’s dividends you’re after, Merchants Trust (LSE: MRCH) could be the perfect investment for you. Merchants is focused on providing the best dividend possible for investors. Today, the trust supports a dividend yield of 5.3%, and some of its most substantial holdings include FTSE 100 income champions such as HSBC and BP.
Dividend Hero
Merchants has a long history of dividend investing. The company has increased its dividend yield to investors for 36 consecutive years, a record that has earned the firm ‘Dividend Hero’ status from the Association of Investment Companies. To be awarded this status, investment trusts must have a record of dividend increases for at least two decades.
Just like Mercantile, Merchants is also low-cost compared to its sector peers. Specifically, the trust currently charges only 0.6% per annum, around the same level as other passive income-focused funds. The company trades at a 4.5% discount to net asset value.
If you’re looking for a dividend champion to add to your ISA, Merchants certainly deserves your attention. Today the company reported, alongside its full-year results, that net asset value increased 14.5% for 2017, outperforming the FTSE 100’s return of 11.3%. Over the longer term, the trust has outperformed as well, producing a NAV return of 49.1% over five years, compared to the FTSE 100’s performance of 45.9% over the same period. The income distribution has exceeded the wider index’s by more than 1.2% over this period.
