With inflation forecast to rise yet further after its increase to 2.9% last month, dividends are likely to remain of high importance to income investors. Certainly, the chances of an interest rate rise appear to be higher following the Bank of England’s Monetary Policy Committee meeting this week. However, the reality is that a 0.25% rise in rates may be insufficient to curb a higher rise in the price level.
As such, buying stocks with upbeat income outlooks could be a wise move. With that in mind, here are two investment trusts with strong dividend potential.
Reporting on Friday was student accommodation real estate investment trust (REIT) GCP Student Living (LSE: DIGS). The company was able to deliver a robust set of results for the most recent financial year, with revenue increasing from £22.5m in the prior year to £28.6m. This was backed-up with a flat operating margin of 79%, while rental growth of 3.9% shows that the company’s operating environment remains resilient.
Net asset value per share increased to 139.08p from 136.93p in the prior year. More growth on this front could be ahead as there remains considerable upward pressure on property across the UK. And since GCP Student Living has a share price of 147p at the present time, it seems to offer a wide margin of safety via a price-to-book (P/B) ratio of just 1.05. This suggests that share price growth could be ahead.
With the company having a dividend yield of 4%, it is likely to offer a positive real return over the long run. Alongside its growth potential and resilient business model, this could increase demand for its shares in future. With a continued imbalance between demand and supply within the UK property sector, the stock could be a solid buy-and-hold for the long run.
Looking ahead, Brexit could have a significant impact on the UK economy. Already, it has contributed to a slowing growth rate, as well as a weaker pound and higher inflation. As such, putting your money into in an investment trust with a global focus could be a sound move to make.
One that has a global outlook is the Witan Investment Trust (LSE: WTAN). It maintains some exposure to UK equities through a 37% holding of UK stocks, but also has a range of other funds and shares within its portfolio. For example, it has a 21% exposure to North America at a time when the US economy appears to be performing well. Higher spending from the Tump administration coupled with the prospect of lower taxes could stimulate the economy yet further.
The company also has a 19% exposure to European equities. Although the impact of QE on the eurozone should not be underestimated, the region appears to offer growth potential. It should help to boost dividend payments in future. And although the Witan Investment Trust currently yields 2%, its dividend growth rate could be relatively high in the long run.
Peter Stephens does not own shares in any of the companies mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.