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My top 2 ‘income’ investment trusts for 2019

Picking dividend stocks is a tricky process. For example, there are plenty of stocks out there right now that yield more than 5%, but some of these companies will almost certainly have to cut their dividends if the global economy plunges into a recession this year. 

With this being the case, I think it’s best to leave the challenge of picking dividend stocks to the professionals. So today, I’m looking at my two favourite income investment trusts for 2019.

Income and growth

My first pick is the Lowland Investment Co (LSE: LWI). Managed by James Henderson and Laura Foll, this investment trust tries to pick equities across the spectrum. The managers (who have several decades of experience picking stocks between them) like small and mid-cap stocks for their growth potential, but also like large-cap stocks that produce a steady level of income.

Over the years this has proven to be a potent combination. The trust currently supports a dividend yield of 4.1% and over the past five years has churned out steady capital gains averaging around 2% per annum, although, like the rest of the market, the share price has suffered significantly in recent months. Over the past 12 months, the Lowland share price is down 11%, slightly more than its benchmark loss of 8.7%.

Still, I think in the long term this company should prove to be a winner particularly when you include reinvested dividends. At the time of writing, the shares are trading at a discount of around 0.6% to the net asset value (the five-year average is 2.9%), and the annual management charge is 0.57%, which is relatively modest.

If you are looking for income, it is worth keeping an eye on this trust in my opinion.

Overseas income

Lowland is a UK-focused investment trust, so its performance is tied to that of UK markets. In comparison, the Schroder Oriental Income Fund (LSE: SOI) can hunt for income around the world. 

According to the fund’s latest update, around 16% of its assets are invested in Hong Kong, 13% in China, 13% in Australia 11% in South Korea and the rest across other regions around the world. Only 6.2% of the fund’s net asset value is invested in UK equities.

Schroder Oriental was first launched in 2005, and since then it has proven itself as an income play. At the time of writing, shares in the trust support a dividend yield of 4.2%. Over the past 10 years, every £10,000 invested has grown into £39,000 with dividends reinvested, a compound annual return of 16.3% per annum for investors.

While past performance is no guide to the future, I think this trust can continue to produce at least mid-single-digit per annum returns for investors after including dividends for the foreseeable future. Economic growth across Asia is showing no signs of slowing down, and for UK investors, Schroder Oriental offers great diversification away from the uncertainty of Brexit.

Right now the firm is trading at a small premium to net asset value of 2.2% compared to the 12-month average of 0.1%. The ongoing annual management charge is 0.84% per annum, which I think is relatively modest considering the level of returns the trust has produced over the past decade.

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Rupert Hargreaves owns no share 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.