Within my ISA, I’m focusing on building up a portfolio that is capable of generating a sizeable income stream. My goal is to eventually live off the income stream from the portfolio alone.
I already hold two dividend-paying investment trusts within the account. These are the City of London Investment Trust and the Murray Income Trust. Both have excellent yields and long-term dividend-growth track records.
However, I also have my eye on several others that pay big dividends. Here’s a look at two I’m keen to add to my ISA.
Henderson Far East Income
I’m quite bullish on the long-term growth prospects of China. The country has the world’s largest population at 1.4bn and is already the second-largest economy in the world. Yet my portfolio is underexposed to this economic powerhouse at present. For this reason, I’m considering a position in the Henderson Far East Income (LSE: HFEL) trust.
This trust aims to provide a high level of dividend as well as capital appreciation from a diversified portfolio of investments traded on the Pacific, Australasian, Japanese and Indian stock markets.
With a 30% weighting to China, the trust appears to be an excellent way to gain exposure to the world’s second-largest economy, as well as exposure to other fast-growing countries such as South Korea and Taiwan. The top three sector weightings within the trust are financials, oil & gas and technology and the top three holdings are currently Samsung Electronics, China Construction Bank and Agricultural Bank of China.
The dividend yield on offer from the Henderson Far East Income trust looks very attractive. For 2017, the payout was 20.8p per share, which equates to a yield of 5.7% at present. It’s also worth noting that the dividend has been increased for 10 consecutive years now, an excellent achievement. I think this trust could be an excellent addition to my ISA, given its high yield and geographical diversification benefits.
Merchants Investment Trust
Turning back to the UK, another high-yielding investment trust I’m considering is the Merchants Investment Trust (LSE: MRCH).
This trust mainly invests in large FTSE 100 companies with the aim of providing its shareholders with an ‘above-average’ level of income and income growth, as well as long-term capital growth.
Looking at the top holdings, there are plenty of familiar names within the portfolio. For example, Royal Dutch Shell is the top holding with a portfolio weighting of 7.5%, followed by GlaxoSmithKline (6.2%), BP (5.2%) and HSBC Holdings (4.9%). In other words, an investment in this trust provides exposure to some of the largest, blue-chip companies listed in the UK.
The dividend yield here is also very attractive. For 2017, investors received 24.2p per share, which at the current share price of 465p, is a yield of 5.2%. Impressively, the payout has been increased for 35 consecutive years now. With a low ongoing charge of just 0.63%, the Merchants Investment Trust appears to be an excellent choice for UK income investors.
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Edward Sheldon owns shares in City of London Investment Trust, Murray Income Trust, Royal Dutch Shell and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended BP, HSBC Holdings, 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.