With a dividend over 10%, this high-yield share looks tempting!

Christopher Ruane explains why he’d consider adding this high-yield share to his portfolio for its passive income prospects.

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Investing in shares that can pay me good dividends is one of the ways I aim to boost my passive income streams.

One of the high-yield shares that has been on my radar for a while has fallen in price over the past year. That means I can now buy it more cheaply than before — and so earn a higher yield.

Early-stage focus

The share in question is the Income and Growth Venture Capital Trust (LSE: IGV).

With a 10.9% yield, it certainly could be a nice little earner for me. Investing £1,000 at that rate would earn me over £100 per year – as long as the dividends are maintained.

But dividends are never guaranteed.

Income and Growth aims to invest in early stage growth companies then share out its earnings from time to time with shareholders. As its own income streams can be inconsistent, that means the dividend tends to move around a lot.

Last year, for example, the total dividend was 8p per share. Two years earlier it had been 14p per share, but the year before that it was only 6p per share.

Still, even a 6p dividend would be an 8.1% yield, based on the current share price. That is the sort of high yield I would like having in my portfolio.

The trust managers aim to pay out a minimum of 6p per share each year. Last month they declared the first dividend for the current year, of 4p per share.

Dividend sustainability

To deliver on its dividend ambition, the trust needs at least some of its investments to do well. There is a risk that a tough economy will hurt returns from early stage companies. That could eat into profits at Income and Growth.

For now though, the fund managers continue to do well. Take the trust’s investment in the company EOTH for example. That holding cost £1.4m 11 years ago. Last year, Income and Growth sold its remaining equity stake. The investment had generated £9.4m in total, meaning the trust got back almost seven times its investment in little over a decade.

That sort of return sounds great to me. Of course, not all of Income and Growth’s portfolio holdings will do well. But if it can choose some big winners – and its track record suggests it can – that could be enough to help it generate spare cash to pay out to shareholders as dividends.

I’d buy

With inflation raging, high-yield investments are attractive to me. I like the fact that Income and Growth offers me the potential of strong dividends, but also exposes me to the growth prospects of up-and-coming businesses.

If I had spare cash to invest today, I would add this share to my high-yield 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 assessed. Consider taking independent financial advice.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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