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Looking for income and growth? Consider these top dividend investment trusts

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One investment trust I believe is set to outperform in the year ahead is Henderson Far East Income (LSE: HFEL). It’s a fund suited for income and growth investors alike, with shares in the fund currently offering a dividend yield of 5.4%.

Faster dividend growth

Looking ahead, it seems set to benefit from the more constructive outlook for emerging market economies in 2018, which is likely to drive further gains for emerging market equities. Asian markets are particularly promising, with recent GDP growth forecasts revised upwards for both China and India.

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What’s more, Fund manager Michael Kerley reckons Asian companies have a greater potential to grow their dividends than those from other regions because, on the whole, they have been generating more cash than is being used for new investments. This ‘excess’ cash leaves room for increased shareholder payouts going forward.

Additionally, he believes current dividend payout ratios in Asia are relatively low compared to companies from other regions, meaning there’s greater scope for dividend growth than elsewhere.

Value focus

Kerley uses a value driven approach, with a preference for companies that generate reliable and growing cash flow, in order to deliver a portfolio of high quality Asia Pacific equities that generate high and sustainable dividends. As such, I reckon this fund may be considered by income investors as a potential alternative source of equity income to UK-focused equity funds, thereby allowing investors to diversify geographically and potentially to reduce risk.

Over the past five years, the fund has delivered a total net asset value (NAV) return of 53.3%, with dividends per share growing by an annualised rate of 4.1%.

Private equity

Another area worth considering for investors seeking income and growth is private equity. It has been one of the best-performing alternative asset classes in recent years, but retail investors seldom get much exposure to the asset class because it’s largely closed off to them. Thankfully, investment trusts, such as NB Private Equity Partners (LSE: NBPE) enable us to gain access to this market, which is under-tapped by retail investors.

There are many reasons for investing in private equity, not least the fact that there are many more unlisted companies than publicly listed ones, so there is a broader investment universe to benefit from. Other reasons include the historical outperformance in returns against equities, better active management opportunities and diversification advantages.

Lower charges

But what sets NB Private Equity Partners apart from many such investment trusts is that a majority of its assets, by value, is invested directly into private-equity backed companies. This is unlike most other peer businesses, such as the Standard Life Private Equity Trust, which use a ‘fund of funds’ approach that adds an extra layer of cost.

As a result, NB Private Equity Partners has lower all-in costs to investors than most listed private equity investment vehicles.

Another attraction for prospective investors right now is that shares in the investment trust currently trade at a sizeable discount to its NAV. With shares in the trust currently trading at a 16% discount to its NAV, there may be additional scope for upside should the discount narrow in the future.

Shares in the investment trust currently support a dividend yield of 3.5%.

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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.

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