Investments that generate both income and growth are often considered to be the ‘holy grail’ of investing. With these kinds of investments, one can build wealth for the future while simultaneously generating passive income.
Here, I’m going to highlight two investment trusts I’d buy for both income and growth. Both of these trusts have delivered strong capital gains over the long term along with rising dividends.
A top investment trust for income and growth
One investment trust I’d be happy to add to my portfolio for both income and growth is Bankers (LSE: BNKR), which was incorporated all the way back in 1888. Its aim is to achieve capital growth in excess of the FTSE World Index and dividend growth greater than inflation over the long term. Janus Henderson is the trust’s investment manager.
Bankers Investment Trust has delivered impressive long-term results on both the income and growth fronts. On the income side, it has now delivered 54 consecutive dividend increases. As a result of this track record, it is classified as a ‘Dividend Hero‘. Currently, the yield is a little under 2%.
Meanwhile, on the growth side, performance has been strong. For the five years to 30 June, the trust’s net asset value (NAV) increased 99%. By contrast, its benchmark, the FTSE World Index, returned 88%.
This trust owns some great companies. Names such as Microsoft, Visa, and American Express are currently in the top 10 holdings. One risk to consider here, however, is that the trust is currently quite heavily weighted to two very cyclical sectors – industrials and financials. If economic conditions deteriorate, it could underperform.
Ongoing charges are a reasonable 0.5% per year.
Growth and dividends: a winning combination
Another trust I’d buy for income and growth is the Alliance Trust (LSE: ATST). It aims to include core equity holding for investors that deliver a real return over the long term through a combination of capital growth and a rising dividend. It invests primarily in global equities across a wide range of industries and sectors.
This trust has a unique investment process. Its investment manager, Willis Towers Watson, has appointed a number of stock pickers with different styles, who all ignore the benchmark and buy a small number of stocks in which they have a strong belief. The result is that investors enjoy both highly-focused stock picking and increased diversification.
Long-term performance here has been very good. For the five years to 31 July, the trust delivered a total shareholder return of 95%. By contrast, the MSCI ACWI index delivered a total return of 82%.
It also has a good long-term dividend track record. Like Bankers, it is a Dividend Hero. Currently, its yield is about 1.4%.
I really like the portfolio here. Top holdings at the end of July included Alphabet (Google), Microsoft, and Visa. One risk to consider, however, is that it has a bias towards the technology sector. If tech stocks fall, this trust could underperform.
Ongoing charges are around 0.65% per year.
