Forget the Cash ISA! These dividend hero investment trusts now yield an incredible 18% after 10 years

Is it really possible to get a dividend income of 18% a year? Harvey Jones says it is.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When Tina Turner sang “We don’t need another hero“, she was referring to Mad Max in the Thunderdrome, rather than dividend-paying investment trusts. If she had been singing about investment trusts, I’m sure the lyrics would have been different because, in this case, heroes are exactly what we need. And lots of them.

High income heroes

Fortunately, the investment trust sector is more than happy to oblige. Currently, 20 trusts are yielding 7% or more, while four yield an incredible 10%. This kind of income is heaven-sent in troubled times like these, when cash should come with a health warning.

The definition of an investment trust dividend hero is a fund that’s increased its payout for 20 consecutive years, giving investors a consistently rising return. This is the real beauty of dividend yields, but one many investors overlook. Dividend-paying stocks aim to increase their payouts, year after year, which means you’re locking into a potentially-rising income stream.

The beauty of compound interest

Let’s do some simple maths here. Say you buy an investment trust whose share price is trading at £1, and its annual dividend is 5p. You are getting a 5% yield. After a decade, its share price has doubled to £2. The dividend has also doubled to 10p. This means new investors are still getting a 5% yield. However…

The original investor is actually getting a yield of 10%, based on their original investment. They paid in £1 but are getting 10p. Once you start looking at dividends in this way, they become even more attractive. Especially if you reinvest your dividends back into the stock, as you’ll hold steadily more shares or units over the years, multiplying your income.

Looking at it this way, the best dividend hero investment trusts are now yielding up to 18% on a 10-year basis, according to calculations from AJ Bell.

Witan wisdom

It found venerable investment trust Witan, launched in 1909, comes top of the pile for its current yield, at 17.9%. That means if you invested £10,000 a decade ago, you’re now getting dividends worth an incredible £1,800 a year. And you wonder why we at the Fool repeatedly bang on about the glories of dividend stocks and compound interest?

Witan also has one of the longest track records of raising its dividend, having done so for the past 44 years. Over the past decade, investors who had automatically reinvested their dividends would have seen a total return of 237.7%.

Henderson Smaller Companies and BlackRock Smaller Companies which, as their names suggest, invest in small UK businesses and boast 15 years of increasing dividends. The Henderson trust currently yields 11%, turning a £10,000 investment into £53,214 over the past decade. Meanwhile, the BlackRock trust has a 10.3% yield and the same investor would be sitting on almost £62,000. Combine dividend and growth, and you have something truly spectacular.

One dividend and growth hero I’d also like to highlight is Scottish Mortgage, which has delivered a total return of 523% over the past decade, turning a £10,000 investment a decade ago into £62,341 today. 

AJ Bell personal finance analyst Laura Sluter said this shows the benefits of a buy-and-hold strategy. And you were thinking of putting your money in a Cash ISA paying just 1%, or so? Time to think again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »