Investment trusts can be an excellent way for investors to source a large and dependable second income. By investing in a wide range of shares and other financial assets, they can provide consistent returns over the long term.
Individuals can choose to diversify themselves by building a customised portfolio of separate shares. However, this can create much more legwork and greater costs than buying a trust that does the hard work on investors’ behalf.
In addition, some assets that these investment trusts hold can’t be purchased in popular products like the Stocks and Shares ISA or Self-Invested Personal Pension (SIPP).
With this in mind, here are three high-yielding trusts to consider. As you’ll see, their prospective dividend yields soar above the FTSE 100 historical average of 3-4%.
Latin fever
At 5.7%, the BlackRock Latin American Investment Trust (LSE:BRLA) has the smallest dividend yield among this selection. But the potential for healthy long-term capital gains and passive income means it still merits serious attention.
In the past decade, it’s delivered an average total annual return of 7.9%. The trust provides exposure to 35 companies in total, which are as varied as iron ore producer Vale, railway operator Rumo and financial services provider Banorte.
This BlackRock trust portfolio spans much of Latin America, though the overwhelming majority (92%) of its holdings are in Brazil and Mexico.
This large weighting towards just two countries creates added regional risk. But focusing on Latin America’s richest and most populous nations also carries greater growth potential over time.
Going green
The Foresight Environmental Infrastructure (LSE:FGEN) trust’s designed to “support the drive towards decarbonisation, resource efficiency and environmental sustainability“.
This allows it to provide strong returns as governments and businesses step up to fight climate change. For this financial year, its dividend yield’s a FTSE 100-smashing 10.7%.
This investment trusts holds a portfolio of 41 assets, and its expertise extends far and wide. It provides wind and solar power, generates biomethane from waste products, and operates natural gas refuelling stations for trucks. This means it’s not dependent on a single technology, which can smooth returns across different market conditions.
Bear in mind though, that changes to electricity contracts could impact returns over the short term.
Residential hero
The trusts I’ve described have excellent records of dividend delivery. But they’re not obligated to pay a minimum amount out in profits to shareholders, which can make passive income levels more unpredictable for investors.
Real estate investment trusts (REITs) like Social Housing REIT (LSE:SOHO), on the other hand, tend to provide superior visibility. Under sector rules, a minimum of 90% of annual earnings from their rental operations must be paid in dividends. This is the price they pay for juicy tax breaks.
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.
I like this particular REIT because its defensive operations offer even more security to investors. It specialises in providing accommodation for adults with special care needs, demand for which is unaffected by broader economic conditions.
Social Housing’s forward dividend yield’s a huge 8.6%. I think it’s worth considering, despite the impact that interest rate movements can have on its property values.
