If you’re looking for high yields from reliable income-generating investments, then you may be interested in these two investment trusts.
First up is The Renewables Infrastructure Group (LSE: TRIG), which invests in renewable energy assets in the UK and Northern Europe, including wind farms and large-scale solar power projects.
Investors are on the hunt for alternative sources of reliable income as the stock market is trading near record highs and yields on bonds remain pitifully low. With physically-backed assets and the guaranteed nature of government subsidies for renewable energy generation, investing in renewable energy projects should deliver stable, long-term returns.
Another benefit of investing in renewables is diversification. As returns from investing in such assets have historically had little correlation with traditional investments, such as stocks and bonds, the inclusion of renewable investments could give investors greater downside protection in a market sell-off.
There’s some inflation protection too, as revenues benefit from inflation linkage via Feed-in tariff and CfD subsidies, which are pegged to RPI inflation, and exposure to energy prices.
The Renewables Infrastructure Group has been an impressive cash cow for income investors since its IPO in 2013. Those who have invested from the beginning have earned a total return — that is both the capital growth and dividend income, of 8% annualised.
At a current share price of 106.2p, the fund offers investors a current dividend yield of 6% from a quarterly dividend payout of 1.6p per share. And in line with peer renewable energy investment trusts, shares in the fund trade at a slight premium to its net asset value (NAV) of 6%.
Another safe high-yielding investment trust worth a closer look is GCP Infrastructure Investments (LSE: GCP).
Infrastructure has been one of the most popular defensive asset classes in recent years, attracting billions in fund flows from sovereign wealth funds, pension companies and other institutions. With stable cash flows underpinning infrastructure assets, funds with holdings in infrastructure investments tend to earn steady and predictable income.
GCP Infrastructure Investments is somewhat different to other infrastructure investment trusts, in that it doesn’t invest in equity interests of infrastructure projects, but instead in the debt issued by infrastructure projects.
As a buyer of debt, particularly Private Finance Initiative debt, as opposed to equity investments, the investment trust is expected to be less risky than its peers. There’s substantially less operational risk involved, since equity holders, being the residual claimants of a company’s assets, usually take the first hit from any impact on profits.
Moreover, the fund has some hedge against inflation too as a big proportion of its assets is inflation-linked.
On the downside, valuations are a bit more expensive relative to sector peers, with shares trading at a 14% premium to its NAV. But in spite of its bigger valuation premium, the shares still offer investors a similar yield of 6%.
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.