As I write on 10 October, The City of London Investment Trust (LSE:CTY) is offering a dividend yield of 4.2%. This is based on amounts paid (21.45p a share) over the past 12 months. A £10,000 investment made in October 2020, would have earned dividends of £3,024 during the past five years.
Remarkably, the trust has increased its payout for 59 consecutive years. Of course, this is unlikely to carry on indefinitely but history suggests there’s a good chance that it will continue for at least a few more years.
At the moment, Topps Tiles (LSE:TPT) offers a more impressive yield of 5.1%. But a £10,000 investment five years ago, would have ‘only’ generated £2,854 in payouts. And there’s no pattern to its dividend.
It was suspended during the pandemic, reinstated in January 2022 and increased by 16% for its 2022 financial year. It was then maintained for two consecutive years before being cut by 33%. This year’s interim payout has also been reduced by a third. It really is all over the place.
In terms of cash, the investment trust has delivered a better return over the past five years but it currently has a lower yield. It pays to take a closer look when analysing dividend shares.
Good prospects
But putting their payouts to one side, I believe there are reasons why the share prices of these two stocks could move higher.
The City of London Investment Trust invests primarily in UK equities. With a “bias towards large, multinational companies and a conservative approach to portfolio composition”, it’s not surprising that its share price closely matches that of the FTSE 100.
At 31 August, it had 77 separate positions including 17 of the FTSE 100’s largest 20.
But being UK-centric has its downsides. The British economy appears sluggish and even though most of the trust’s investments are in global companies, they will be affected if consumer confidence deteriorates further. The trust also trades at a premium to its net asset value, albeit a very modest one.
Whisper it…
Although it might not be fashionable to say it, I believe the UK’s home to plenty of quality companies. Some of them might not have the glitz and glamour of the Magnificent 7 but many are reliable performers.
That’s why I think The City of London Investment Trust should do well over the long term. And there’s the prospect of earning a steadily increasing above-average dividend as well. That’s why I think the trust’s one to consider.
Growth through diversification
As the UK’s market leader, Topps Tiles is clearly good at what it does. Preliminary results for the 52 weeks to 27 September indicate that it’s been a record period for sales with a 6.8% year-on-year increase.
Earnings per share is expected to be around 3.38p giving a modest forward multiple of 11.5. However, the group faces the twin challenges of operating 297 bricks and mortar stores and dealing with government-imposed additional staff costs.
But the group retains a strong balance sheet and expects to report a net cash position when its results are finalised. It’s also seeking to expand its trade offer and has started selling other coverings including luxury vinyl tiles, laminate and shower panels. On balance, I think it’s a stock that long-term investors could also consider.
