3 investment trusts I’d buy for a 5%+ income in 2022

Investment trusts can be a great way to generate reliable income. Roland Head highlights three he’d buy, including a renewable energy stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Light bulb with growing tree.

Image source: Getty Images

When I started investing, I found it difficult to generate a diversified income when I only had enough cash to buy a few shares. I found that buying investment trusts was a great solution to this problem.

39 years of dividend growth

Merchants Trust (LSE: MRCH) offers a 4.9% dividend yield and has increased its dividend for 39 consecutive years. The trust typically invests in large FTSE 100 companies which pay regular dividends. Top holdings at the end of November included GlaxoSmithKline, British American Tobacco and National Grid.

This conservative strategy isn’t likely to win any medals for rapid growth. But Merchants’ managers are able to boost their returns by using debt to buy shares. This has worked well recently — Merchants Trust’s share price rose by more than 20% in 2021, compared to less than 15% for the FTSE 100.

Using debt adds risk, as it can increase losses during a market crash. Another risk I can see is that GlaxoSmithKline, the trust’s largest holding, is planning to cut its payout next year.

However, Merchants Trust has experienced managers and a long track record. I’d be happy to park some of my cash in this trust in 2022.

Solar-powered dividends

My next pick is renewable energy stock Foresight Solar Fund (LSE: FSFL). Despite its name, Foresight is also an investment trust.

Foresight listed on the London Stock Exchange in 2013, making it one of the older renewable stocks on the market. As its name suggests, it generates the majority of its income from investments in solar power assets. These have a total capacity of over 1GW.

The UK is obviously not the most attractive location for solar power, but Foresight isn’t limited to its home market. The trust also has solar assets in Australia and Spain and is expanding into battery storage.

Foresight shares currently offer a tempting 6.9% dividend yield. The main risk I can see is that, in the future, government subsidies for solar power will gradually be withdrawn. This could leave the trust more exposed to uncertain wholesale electricity prices, putting pressure on the dividend.

For now, Foresight’s 6.9% payout looks safe to me. I’m thinking about adding some to my portfolio this year.

This investment trust offers a defensive 5% income

Supermarkets are one of the most defensive businesses in the world, in my view. Whatever else is happening in life, we’ll always need to do regular food shopping.

One investment trust that’s delivered a steady performance in recent years is Supermarket Income REIT (LSE: SUPR). This real estate investment trust specialises in buying supermarket properties and leasing them back to operators such as Tesco and Sainsbury’s.

Leases on big supermarkets are generally long, with clearly-defined payments. For example, it recently acquired a Tesco supermarket with 17 years remaining on its current lease. This means the trust has good visibility of future cash flow — useful for dividends.

A risk I can see here is that the market for supermarket property is quite strong at the moment. Prices are quite high. If interest rates rise, or property prices fall, then I think Supermarket Income REIT’s dividends could come under pressure.

However, the current situation still looks comfortable to me. With a forecast dividend yield of 5% in 2022, I am considering Supermarket Income for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco, Foresight Solar Fund Limited, GlaxoSmithKline, and Tesco. 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I’m aiming for millionaire status via income stocks and the miracle of compounding!

Income stocks are an important part of my portfolio. But I rarely take my dividend payments. Instead, I reinvest them…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

5 dividend stocks with 5%+ yields I’d buy now

These dividend stocks should deliver reliable yields of between 5% and 8%, which means they appeal to Roland Head.

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

2 ‘irresistible’ FTSE stocks to buy before the market recovers!

For me, the FTSE is the most attractive index to invest in. Valuations are low and yields are high. So…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Is NIO stock a buy at $20?

NIO stock has been pretty volatile over the past few months. Here, Dylan Hood takes a look to see if…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

I’m buying more Lloyds shares at 45p! Here’s why

Lloyds shares look cheap to our writer at present. Charlie Carman outlines the factors behind his decision to invest more…

Read more »

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

When will the Rolls-Royce share price recover?

The Rolls-Royce share price may be down, but cash flows are surging! Zaven Boyrazian explores how long it could be…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

1 dirt-cheap FTSE 100 stock I think could TRIPLE my money!

Demand for lithium is forecast to surge by 42 times, enabling this FTSE 100 stock to potentially supercharge its profits…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »