2 bargain investment trusts with yields over 7% to consider buying for a Stocks & Shares ISA

Roland Head highlights two high-yield opportunities that could deliver attractive returns inside a Stocks and Shares ISA.

| 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.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

My Stocks and Shares ISA is always my first choice when I have cash to invest, as it allows me to benefit from tax-free income and capital gains.

Right now, I’m looking for investment ideas that can deliver a market-beating income and future capital gains. I think I’ve found two stocks that could fit my requirements.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Should you invest £1,000 in NIO right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if NIO made the list?

See the 6 stocks

Big dividends from supermarkets

My first choice is FTSE 250 property specialist Supermarket Income REIT (LSE: SUPR). As the name suggests, this investment trust owns supermarkets sites and leases them to big retailers.

Tesco and J Sainsbury are this REIT’s largest tenants, and the risk of them failing to pay rent on time seems pretty low.

Despite this, Supermarket Income’s share price has fallen by around 40% over the last two years. This slump is mainly due to the impact of higher interest rates.

Created with Highcharts 11.4.3Supermarket Income REIT Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Investors are worried that when Supermarket Income refinances its loans, higher interest rates could wipe out profits (and dividends).

That’s certainly a risk for some REITs, but I don’t think it’s very likely here.

Supermarket Income’s debt costs look comfortable to me, and its properties are usually on long leases. Rents are often linked to inflation, too.

Large supermarkets rarely close or change location, so I don’t expect many empty properties.

This two-year slump has left Supermarket Income trading at a 15% discount to its 88p book value, with an 8% dividend yield.

If interest rates fall, then I’d expect Supermarket Income’s share price to move closer to its book value. In the meantime, I think this stock offers a relatively low-risk opportunity to lock in an 8% income.

Private equity with a 7% yield

As a private investor, I can’t easily invest directly in private companies. That rules out a whole chunk of the global economy – including many smaller and faster-growing businesses.

Fortunately, there are a number of investment trusts that allow small investors like me to get exposure to private companies. One example is Apax Global Alpha (LSE: APAX). This FTSE 250 investment trust gives investors access to funds run by leading private equity firm Apax Partners.

Created with Highcharts 11.4.3Apax Global Alpha PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The trusts’ investments are focused on four sectors – tech, services, healthcare, and internet/consumer. In my view, these are all attractive areas for long-term growth.

Right now, the trust’s stock is trading around 25% below its March 2024 book value of 217p per share.

Admittedly, this discount reflects some risks about the outlook for private equity. Rising interest rates mean it’s more expensive to borrow money to fund new investments. At the same time, potential sale prices for some current investments may be under pressure.

Even so, I think this gap is likely to narrow over time, especially if interest rates fall. That could generate a tidy capital gain for patient shareholders.

There’s no certainty of this, of course. But the trust’s dividend does seem quite safe. Management recently fixed the payout at 11p per share, giving a yield of just over 7% at the time of writing.

Equity investments always carry some risk of losses. But Apax has a long track record and I like the trust’s balanced approach to shareholder returns. Overall, I think the shares look good value at the moment and could be a good way to diversify a UK share portfolio.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. 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

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s how a £20k ISA could produce £1,580 of passive income in the next year

A Stocks and Shares ISA stuffed with dividend shares can be a lucrative source of passive income. Christopher Ruane explains…

Read more »

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »