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2 top dividend hero investment trusts for an uncertain market

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We’re seeing global trade risks re-emerging in the headlines this week, and this has caused a bit of a risk-off trade in the financial markets. It’s a pertinent reminder that investing in the stock market is not without its risks and a warning that investors should not become too complacent in the current bull market.

Investment trusts

For those on the hunt for reliable income, it may be worth considering investment trusts as a way to get exposure to the stock market. An advantage that investment trusts hold over open-ended funds, such as unit trusts, is their ability to hold back some of the dividend income they earn each year. This enables them to draw down on their reserves to smooth out income payments during more difficult periods.

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The Foreign & Colonial Investment Trust (LSE: FRCL) is one such investment trust which has paid a dividend every year since its inception 150 years ago. What’s more, it has also been growing its dividend for 47 consecutive years.

Broad exposure to global markets

The F&C fund is well-balanced and geographically diversified with broad exposure in international markets and across various industries. This one-stop shop approach makes it a potentially attractive core holding for a starter portfolio, or for those investors seeking to increase their portfolio diversification.

With Brexit uncertainty continuing to overhang on UK economic growth, the fund has continued to cut its exposure to domestic stocks. Its portfolio of UK stocks account for less than 5% of its total assets, down from the 29% in 2013.

North America is its biggest geographical exposure, with 34% invested there. This is followed by Europe (excluding theUK) at 13%, emerging markets (11%) and Japan (9%). It has a further 23% invested in its multi-manager Global Strategies portfolio and 6% in private equity funds.

Shares in the investment trust have a current dividend yield of 1.5%.

Direct property and equity

Meanwhile, the Value and Income Trust (LSE: VIN) has a more unique offering, investing both in UK equities and direct property. By combining investments in these two areas, the fund aims for long-term real growth in dividends and capital value without taking on too much undue risks.

Property investments account for a growing proportion of its assets and currently represents a little more than a third of its portfolio value. The trust focuses on higher yielding, less fashionable areas of the UK commercial property market.

It has a preference towards assets with long, stable income streams, particularly those benefiting index-linked rent reviews. Such index-linked leases account for 62% of the portfolio’s rental income, affording it substantial protection against inflation. And to further underscore its risk-averse culture, the property portfolio has a long average unexpired lease length of 14 years, with investments being funded for many years by long-term fixed rate loans.

High yield

In the equity space, it’s invested in a diversified portfolio of primarily high-yield stocks, which includes many medium- and smaller-sized companies. Its largest equity holdings include Beazley, Unilever, Halma, BP and Legal & General.

Trading at an 18% discount to its net asset value (NAV), shares in the Value and Income Trust are attractively priced. Dividends per share for the trust grew by 3.6% to 11.4p this year — marking its 31st consecutive year of dividend growth, and giving shares in the trust a yield of 4.2%. 

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Jack Tang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Halma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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