I like capital growth. My Stocks and Shares ISA portfolio being so heavily weighted to the equity markets reflects this. However, my day-to-day costs are rising at an alarming rate. So an additional passive income would be very handy, especially if it required little time and effort from me. Can investment trusts be the solution?
Income benefits of trusts
An investment trust is a collective fund. Such a fund bundles together an investor’s savings with those of other people. And a fund manager invests them in shares, bonds, or property that they believe will increase their investors’ wealth over time.
Some are known as ‘dividend heroes’. They’re heroic because they have an astonishing history of paying out dividends consistently. This is as well as growing those payouts a little more every year. City of London Investment Trust is a good example. It has been paying a growing dividend for the past 56 years.
A diversified portfolio
I’m considering spreading £25,000 that I have in surplus cash equally across dividend hero trusts. Will it be possible for me to generate a substantial enough monthly income to draw on? My long-term horizon of five to 10 years should increase the likelihood of this.
I require a combination of trusts that pay dividends on a quarterly basis. This way I should be able to have a monthly inflow of passive income.
My picks are Murray Income Trust (it pays dividends in March, June, September, and December); Henderson Far East Income (payouts in February, May, August, and November); and Lowland Investment Co (January, April, July, and October).
My monthly investment income forecast
I chose these trusts because they’re among the highest yielding. Furthermore, they all have over 10 years of consecutive yearly dividend increases (48 and counting in the case of Murray Income). Most importantly, I can get that monthly income from them.
By today’s numbers, the average yield from splitting £25,000 equally among them will be 5.93%. I think that’s impressive considering the collective yield is forecast to grow every year. But I’m aware past performance is no indication of future performance.
I’ll theoretically receive a 12-month passive income of £1,482.50 (£123) per month. The bigger my portfolio, the bigger the pay-off. If my £25,000 became £250,000, that’s a potential 12-month gross income of £14,825.
Not a bad return considering I barely need to do anything to achieve it. The fund managers provide the skill and experience to earn this income for me.
Income and growth
Investment trusts tend to make it a priority to ensure income will be paid to investors. This is regardless of the economic climate.
And this is why I’m considering adding these companies to my portfolio, but only once the shares are trading at a discount to their net asset values. This bargain approach can boost my total return. It means there’s a chance the shares will see some capital growth in addition to the monthly income.
It will be handy if I can find that extra £225,000 investment lump too. But to do that I need to be patient and focus on a long-term investing plan. However, my £25,000 lump sum will give me a great start.
