Dividends are a great way to build compounding returns in a Stocks and Shares ISA. With tons of reliable investment trusts in Britain, it’s easy to find those that pay regular and reliable dividends.
UK residents can make the most of their returns with an annual £20k tax-free ISA allowance.
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.
Investment trusts offer instant access to a highly diversified portfolio of stocks, often across various industries and regions. Since professionals manage them, the returns are usually reliable — although they typically incur a small fee of around 1%.
Here, I’m going to highlight three investment trusts that have a long track record of paying reliable dividends. I think they could be worth considering as initial investments in a new ISA.
Value in the City
City of London Investment Trust (LSE: CTY) is considered the number one dividend hero by The Association of Investment Companies. It’s been paying an increasing dividend for 58 consecutive years.
It holds assets across eight European countries with a heavy weighting towards UK stocks. This means it risks losses if the UK economy declines. While the yield of 4.7% is far from the highest in the UK, its track record is reliable. When aiming for long-term passive income, I like this type of stock. I can set it up with a dividend reinvestment plan (DRIP) and leave it to grow.
The price increased 188% since 1994, equating to an annualised return of 3.6% a year. That’s below the FTSE 100 average but is normal for stocks that deliver value via dividends.
The property play
UK real estate has become a core focus of my investing strategy since the Labour Party took power. Just how effective its new housing policies will be remains to be seen – but I’m optimistic.
Value and Indexed Property Income Trust (LSE: VIP) invests in high-yielding but less popular sectors of UK commercial property. It boasts an attractive 6.8% yield and has been increasing its dividend for 37 consecutive years.
The five-year dividend growth rate’s small, at only 2.27%, but payments are reliable and consistent. And with the price up 28% in 10 years, its annualised return’s 2.5%. However, this growth’s largely cancelled out by the higher-than-average ongoing charge of 1.88%.
Investing in property-related trusts can be risky though. If a global crisis sends the economy into freefall, real estate could be hit hard. This is reflected in the trust’s volatile price, falling sharply in 2008 and 2020.
The banker’s choice
With a 4.83% yield, JPMorgan Claverhouse (LSE: JCH) is another investment trust with a great track record. Its dividend has increased for 51 consecutive years, with a five-year growth rate of 4.64%.
This trust also holds some of the top stocks on the FTSE 100, including Shell, AstraZeneca and HSBC. It’s similar to, and could be considered as an alternative to, the City of London. The yield’s slightly higher but with a bit less growth over the past 30 years. It’s up 120% in three decades, delivering an annualised return of 2.7%.
It has a low-risk gearing range of between 0 and 20%, currently at 8%. Still, with a focus mainly on UK stocks, it’s at risk of losses if the local economy falters. It also has an ongoing charge of 0.7%, which eats into profits.
