The Mercantile Investment Trust (LSE: MRC) is one of my favourite trusts. This firm is focused on finding top UK growth stocks, small and mid-cap companies that are leaders in their respective sectors thanks to a prevalent competitive advantage.
Mercantile has a solid record of achieving this goal. Over the past decade, the trust’s net asset value has grown by 205%, outperforming its benchmark by 15% over the same period. This return shows portfolio manager Martin Hudson, who’s been at the helm since 1994, knows a thing or two about picking stocks.
And one of the primary reasons why this trust, rather than any of its peers, occupies a significant percentage of my portfolio is the fact that it only charges 0.45% per annum to manage investors’ money — that’s less than half of the UK average fund fee of 1.13%.
What’s not to like?
Unfortunately, the one downside about the Mercantile trust is its current lack of yield. The stock supports a dividend yield of 2.3%, paid quarterly. Still, a low yield is more reflective of the company’s high allocation to small-caps, which tend to reinvest cash back into the business rather than paying it out to investors. What’s more, with capital growth averaging 17% per annum since 2009, I’m not overly concerned about the lack of yield.
At the time of writing, shares in the Mercantile trust are trading at a 9.5% discount to net asset value.
If it’s dividends you’re after, Merchants Trust (LSE: MRCH) could be the perfect investment for you. Merchants is focused on providing the best dividend possible for investors. Today, the trust supports a dividend yield of 5.3%, and some of its most substantial holdings include FTSE 100 income champions such as HSBC and BP.
Merchants has a long history of dividend investing. The company has increased its dividend yield to investors for 36 consecutive years, a record that has earned the firm ‘Dividend Hero’ status from the Association of Investment Companies. To be awarded this status, investment trusts must have a record of dividend increases for at least two decades.
Just like Mercantile, Merchants is also low-cost compared to its sector peers. Specifically, the trust currently charges only 0.6% per annum, around the same level as other passive income-focused funds. The company trades at a 4.5% discount to net asset value.
If you’re looking for a dividend champion to add to your ISA, Merchants certainly deserves your attention. Today the company reported, alongside its full-year results, that net asset value increased 14.5% for 2017, outperforming the FTSE 100’s return of 11.3%. Over the longer term, the trust has outperformed as well, producing a NAV return of 49.1% over five years, compared to the FTSE 100’s performance of 45.9% over the same period. The income distribution has exceeded the wider index’s by more than 1.2% over this period.
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Rupert Hargreaves owns shares in the Mercantile Inv Trust. The Motley Fool UK has recommended BP and HSBC Holdings. 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.