City of London Investment Group (LSE:CLIG) is not exactly a household name, unlike so many of the more popular passive income investments you read about.
It’s not like a Rio Tinto or Royal Mail, where it’s easier to understand what they do. But it is a long-standing favourite of mine, so let’s introduce it properly.
What does it actually do?
Known for convenience as CLIG, you might first think it’s just like any other fund manager. But there’s one key difference here, in that it specialises in closed-end funds.
Originally focused on emerging markets, it has since widened that scope geographically. That’s alongside including other specialist investment types, like REITs (real estate investment trusts).
Why do I highly rate this passive income payer?
Why I like this particular investment comes down to three main reasons:
Consistency: CLIG first started paying a dividend in 2007 and has never missed a year since, not even through the 2008 financial and 2020 pandemic respective crashes.
I find that very reassuring, and it tells me that management are committed to returning value to its investors.
Growth: Consistently growing a dividend is another trademark of a great passive income investment. CLIG, from its starting dividend of 10p, has grown, on average, around 9% per year.
While it wasn’t always a smooth rise, that’s an overall dividend growth rate I’m very happy with.
Diversification: Spreading your risk is important in any investment portfolio and by investing in CLIG, I can indirectly gain exposure to closed-end funds and REITs globally. As I’m low on those in my own portfolio, this means I’m unlikely to duplicate existing holdings.
Those are all great reasons, but, as ever, there are risks to consider, so let’s get into those now.
What are the concerns with City of London Investment Group?
I see two key risks to assess with this particular investment:
Dividend Cover: CLIG can be seen to have a low dividend cover rate over time. While it usually keeps to around 1.5, it did fall to a mere 1.01 in 2020. Since then, it’s recovered back to 1.19, with management forecasting a return to the 1.5 level.
Changes at the top: Barry Olliff, founder of City of London Investment Group, is due to retire from his directorship on 31 July. With several other board changes at the same time, there’s a risk of a change of direction or lack of focus on delivery.
Do I think City of London Investment Group is a good buy now?
I first bought CLIG back in 2013, at the now bargain-seeming price of £2.58p. Since then, alongside that consistent passive income stream, it’s risen to well over £5 at times.
Recently, like many shares, it’s fallen from those highs – down about 15% this year, to around £4.20p. At that price it’s now offering a healthy 7.5% dividend yield.
And while market-timing is not a game I play, I have taken the opportunity to add to that original purchase.
Because as a long-term Foolish investor, I want exactly the kind of passive income investment it offers. And I see no reason for that not to continue for several years yet.
