2 dirt-cheap investment trusts for dividend investors

Find out why income investors should take a look a these two discounted investment trusts.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Persistently low interest rates have made income tough to come by in recent years. However, some investors are more willing to take a punt on riskier equities — especially those offering attractive dividend yields and capital growth.

With this in mind, I’m taking a look at two discounted investment trusts with yields of more than 4%.

Canadian equity income

Investing in high yielding stocks is a popular way to add yield to your portfolio and there are many UK equity income funds on offer for investors who don’t want to do a lot of analysis and pick individual stocks. But instead of just investing in the UK, why not consider diversifying your portfolio by investing in foreign equities as well?

Canada is a great country, and it’s home to many high-yielding financial and natural resource stocks. But Canada gets very little press here in the UK, which makes investing there a daunting challenge. As such, investing in an actively managed fund such Middlefield Canadian Income Trust (LSE: MCT) would be a whole lot simpler.

The fund invests primarily in a broadly diversified portfolio of Canadian-listed dividend stocks, although it does also holds some US and international stocks too. Top holdings include The Blackstone Group (5.1%), National Bank of Canada (4.4%), Vermilion Energy (4.3%), Bristol-Myers Squibb (4.3%) and Pembina Pipeline Corporation (4.3%).

Market-beating returns

The trust has delivered market-beating returns, with a five-year cumulative NAV performance of 40%, which compares favourably to its benchmark S&P/TSX Composite High Dividend Index performance of 35% over the same period. Despite this, shares in the investment trust trade at a 10% discount to its net asset value (NAV), meaning investors can effectively purchase its assets for less than the sum of its parts.

However, it’s important to be wary about the fund’s outsized exposure to the real estate sector, which accounts for 22.1% of its portfolio allocation — against just 11.9% in the benchmark index. This exposes investors to a potential bubble in the overheated Canadian market.

Shares in Middlefield Canadian Income Trust currently yield 5%

Natural resources

The City Natural Resources High Yield Trust (LSE: CYN) is another investment trust that offers a market-beating dividend yield. The firm invests in a portfolio of mining and resource equities and loans with the aim to generate capital growth and income for shareholders.

As it flies relatively under the radar, the shares look cheap, offering a discount to its NAV of 14% at the time of writing. However, this is probably not a trust that’s suitable as a cornerstone position in any investment portfolio, as it’s focused primarily on the mining and energy markets.

Nevertheless, with many stocks in these sectors offering attractive dividends, the trust offers investors a tempting dividend yield of 4.8%. This means that although it isn’t suitable for everyone, it could be a useful addition for investors seeking more exposure to natural resource sectors and higher yields.

The fund’s two biggest positions are zinc-focused Trevali Mining (8.7%) and copper miner First Quantum Minerals (5.8%).

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »