When investors think of high dividend yields, stocks such as Royal Dutch Shell and GlaxoSmithKline usually come to mind. However, owning shares directly is not the only way to pick up big dividend cheques.
Investment trusts are publicly traded companies that own a portfolio of stocks. They’re designed to generate profits for shareholders by investing in the shares of other companies. They can be bought and sold in the same way as regular shares, and are a fantastic way to add diversification to your portfolio. And many reward their shareholders with big dividends, on a regular basis.
Today, I’m looking at two investment trusts that currently have higher yields than the FTSE 100 index.
Murray Income Trust
Founded in 1923, the Murray Income Trust’s (LSE: MUT) objective is to achieve a high and growing income, combined with capital growth. It’s run by Aberdeen Asset Management and invests mainly in UK equities, although it does have the flexibility to invest internationally.
At the end of October, the trust’s five largest holdings were Unilever (4.6%), British American Tobacco (4.1%), AstraZeneca (4%), Prudential (3.8%) and GlaxoSmithKline (3.7%). BP (3.5%), HSBC (3.4%) and Royal Dutch Shell (3.3%) also made the top 10. As you can see, that’s a strong focus on blue-chip FTSE 100 names, with those eight companies making up almost a third of the portfolio.
Key international stocks in the top 20 holdings included Swiss pharmaceutical giant Roche, Nordic financial services group Nordea, and Microsoft.
The trust has a fantastic growth track record, having increased its dividend for 43 consecutive years now. For 2017, investors will receive 32.75p per share, which is a yield of 4.3% at the current share price, higher than the FTSE 100’s trailing yield of 2.9%. Dividends are paid on a quarterly basis, which is great news for income investors seeking regular cash returns.
With an ongoing charge of just 0.76%, this trust looks to be a good way to gain exposure to some of the FTSE 100’s largest companies, and pick up an attractive dividend yield in the process.
Another excellent trust for dividend investors is the Merchants Trust (LSE: MRCH). Founded in 1889 and managed by Allianz Global Investors, the trust aims to provide above-average income, as well as income growth and long-term capital growth, by mainly investing in higher-yielding FTSE 100 stocks.
An analysis of the trust’s top 10 holdings, also reveals a list of blue-chip names. Royal Dutch Shell was the top holding at 8.2% of the portfolio at the end of October, followed by GlaxoSmithKline (5.9%), BP (5.8%), HSBC (4.7%) and Lloyds Banking Group (3.4%). Other key holdings included BHP Billiton (3.3%), Prudential (2.9%), and Legal & General Group (2.8%).
Looking at those names, it’s clear to see that the Merchants Trust favours big dividend payers. Indeed, portfolio Manager Simon Gergel has said: “Income is our focus. We are income seekers and we make no apology for buying shares that provide the high yield we require. It’s why so many private investors hold the trust.”
Like the Murray Income Trust, Merchants has an excellent dividend growth history, having increased its payout for 35 consecutive years now. Investors received 24.2p per share for 2017, which is a yield of a high 5.1% at present. With ongoing charges of just 0.63%, this trust is a great option for income investors, in my opinion.
Edward Sheldon owns shares in Royal Dutch Shell, GlaxoSmithKline, Lloyds Banking Group and Legal & General Group. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, BP, HSBC Holdings, Lloyds Banking Group, and Royal Dutch Shell B. 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.