Looking for dividend stocks? These 3 investment trusts might be great buys

Investment trusts can be great ways for investors to achieve financial independence. These dividend growth stocks could be three of the best.

| 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.

An investment strategy focused on dividend stocks can be a great way to build long-term wealth.

By reinvesting dividends I receive, I can substantially boost my returns by earning money on my initial capital investment as well as those income payments.

With my total dividends rising over time as the number of shares I hold increases, the power of compounding significantly enhances my overall returns, leading to exponential growth in my investment portfolio.

Should you invest £1,000 in Babcock 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 Babcock made the list?

See the 6 stocks

Investment trusts can be excellent shares to buy to help me make this a reality. Many are focused specifically on generating income for their shareholders. And with a diversified range of assets and professional management teams, they offer the potential for steady and reliable income streams.

There are many such trusts for UK investors to choose from today. Here are three of my favourites that I think are worth serious consideration.

City of London Investment Trust

City of London Investment Trust (LSE:CTY) is one of the London stock market’s greatest dividend aristocrats. It’s raised the annual dividend for a staggering 57 years on the spin.

At 432p, the trust carries a trailing dividend yield of 4.7%. That’s more than a percentage higher than that of the broader FTSE 100 index.

City of London’s highly geared towards British blue-chip stocks like BAE Systems, RELX, HSBC and Unilever. These businesses tend to be sound investments over time, thanks to their market-leading positions and solid balance sheets.

More than 88% of City of London’s capital is allocated in UK shares. Investors should be mindful that this could lead to disappointing results if economic conditions in Britain worsen.

Alliance Trust

Alliance Trust (LSE:ATST) may be a better buy for investors seeking greater geographical diversification. Right now, 57% of its money is tied up in US equities. The remainder is spread broadly across other global regions.

As with City of London, the trust is also focused on stable, market-leading multinational businesses. Key holdings here include Microsoft, Amazon, Visa and Nvidia.

Alliance has a larger weighting towards tech stocks than many other trusts. This gives investors a chance to exploit hot growth themes like artificial intelligence (AI), though on the downside it also means returns may be more vulnerable during economic downturns.

At £12.20 per share, the trust’s trailing dividend yield is 2.1%. It has also raised annual dividends for 57 straight years.

The Merchants Trust

The Merchants Trust (LSE:MRCH) has fewer years of steady dividend growth than those other two. But at 42 years, it can clearly still be considered a top dividend aristocrat.

Some of the largest holdings here include GSK, Shell, British American Tobacco and Barclays. Almost 45% of its capital is tied up in just 10 companies though, which makes it less diversified in this respect than certain other trusts.

At 576p per share, Merchants boasts a trailing dividend yield of 4.9%. Its exposure to cyclical, sensitive, and defensive sectors suggests it could continue to deliver a healthy passive income to investors.

Should you buy Babcock shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, BAE Systems, Barclays Plc, British American Tobacco P.l.c., GSK, HSBC Holdings, Microsoft, Nvidia, RELX, Unilever, and Visa. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p 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 8.5%, 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

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »