While inflation may have fallen in recent months, it remains at a heightened level. Certainly, an interest rate rise is expected to be delivered by the Bank of England in the near term. This has the potential to cool CPI over the coming months. But with Brexit talks ongoing and the UK and EU still apparently some way off a deal, the prospect of a prolonged period of firmer inflation seems high.
As such, buying investment trusts with high income potential could be a shrewd move. With that in mind, here are two options which could offer strong and sustainable income returns over a long period of time.
Reporting on Tuesday was the F&C Commercial Property Trust (LSE: FCPT). It experienced a somewhat mixed 2017 financial year, with its share price delivering a return of 3.9%. Its net asset value (NAV) increased by 8.7% during the period, with demand from investors remaining buoyant during the year.
Indeed, the company reports that international investors and UK institutions have continued to focus on core assets with secure income streams. And with investment activity during the year moving up sharply from the previous year’s level, it proved to be a stronger year for the trust than some investors had perhaps been anticipating.
With a dividend yield of 4.2%, it continues to offer an inflation-beating income return. It may trade at a slight premium to its NAV of 1.7%, but it appears to have a solid portfolio of investments which could provide dividend growth over the long run. And while the UK economy is experiencing an uncertain period, its ability to overcome Brexit challenges thus far may mean that it outperforms many investors’ expectations in future.
Also offering an impressive income outlook at the present time is the Invesco Income Growth Trust (LSE: IVI). It trades at a 13% discount to its NAV, which suggests that it could offer good value for money. And with a dividend yield of 4%, it is likely to have a real income return even if inflation moves higher over the medium term.
The trust is invested in a number of sectors which appear to offer bright futures from an income perspective. For example, tobacco, healthcare and oil and gas majors feature among its top 10 holdings. Those sectors have generally been unloved in the last couple of years, with investors instead focusing on cyclical sectors that have offered stronger earnings growth.
However, when it comes to dividend yields and the prospect for dividend growth, companies such as GlaxoSmithKline and Shell could be worthwhile holdings in the long run. As such, it seems as though the Invesco Income Growth Trust is well-placed to generate positive dividend growth over the coming years. And while it has underperformed its benchmark in the last three and five years, a successful turnaround could be ahead.
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Peter Stephens owns shares of GlaxoSmithKline and Royal Dutch Shell B. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended 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.