Investing in dividend shares can be a great way to target long-term passive income. Unfortunately dividends are never guaranteed, though. Shareholder payouts can be cut, postponed, or cancelled when crises occur. But by buying investment trusts and exchange-traded funds (ETFs), individuals can significantly reduce the risk of underwhelming income streams.
Investors today have hundreds of such financial vehicles to choose from depending on their investment style and objectives. So they don’t need to diversify across a basket of assets without having to sacrifice their broader investing strategy, either.
With this in mind, here are three top trusts and funds to consider.
The property trust
Real estate investment trusts (REITs) like The PRS REIT (LSE:PRSR) are renowned as stable and generous income shares. This company — which specialises in the ultra-stable residential rentals sector — offers even more safety, as accommodation demand remains steady at all points of the economic cycle.
Under REIT rules, it must pay at least 90% of annual earnings from its rental operations out in dividends. For this financial year (to June 2026) its dividend yield is a FTSE 100-beating 4.4%.
PRS REIT’s share price could dip again if interest rates fail to drop as significantly as the market hopes. Higher rates depress property stocks’ net asset values (NAV) among other things, hitting earnings.
But given steadily rising rents, I’m confident it will remain an attractive long-term dividend stock.
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.
A UK shares trust
Investors looking for larger yields might want to consider Chelverton UK Dividend Trust (LSE:SDV), too. Its forward dividend yield is an impressive 9.4%.
The downside is that this investment trust is focused on small-to-mid-sized British companies. This is a potential issue as — unlike blue chips with stronger balance sheets — their dividends can be more volatile during economic and industry downturns.
That said, Chelverton’s investment in a broad range of businesses helps to spread this risk. Today it has holdings in 66 companies including insurer Chesnara, building materials retailer Wickes, and antenna manufacturer MTI Wireless Edge.
This has enabled the trust to raise annual dividends for 14 years on the bounce.
An alternative ETF
The Invesco US High Yield Fallen Angels ETF (LSE:FAHY) doesn’t invest in the stock market. This means its price performance isn’t subject to the same volatility that often befalls equities.
Instead, this trust holds corporate bonds that have been downgraded to below-investment-grade status. It’s a strategy that leaves it more exposed to default risks. However, this also gives the opportunity to achieve higher returns through better dividend yields.
For 2025, the dividend yield here is a chunky 6.7%.
This Invesco fund also aims to reduce potential default risk on overall returns by holding a wide selection of bonds. Today, this stands at 70. In addition, no single holding constitutes more than 3.76% of the total portfolio.
Some of the bonds it holds are from healthcare provider CVS Health, media company Paramount Global, and aluminium business Alcoa Nederland.
