No savings at 60? I’d buy these 2 investment trusts to generate passive income

Andy Ross likes two investment trusts any investor who wants to retire richer could pick for their high yields and ability to grow dividends year-on-year.

| More on:

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.

Putting savings into investment trusts addresses many of the fundamental questions investors ask themselves, namely how do I own a large number of companies and how do I generate more income year-on-year? I think owning shares in a high-yielding investment trust can help generate a passive income. It could make a big difference to how you retire, especially if you have no savings.

Investing in the UK’s biggest and best

Merchants Trust (LSE: MRCH) aims to provide an above-average level of income, plus income growth and long-term growth of capital by investing mainly in higher-yielding large UK companies. The portfolio holds a host of high-profile companies such as Royal Dutch Shell, GlaxoSmithKline and Barclays. About two-thirds of the trust is invested in the FTSE 100 with a further 25% in the FTSE 250. The rest is divided between small-caps and cash.

The dividend is paid quarterly, which is good if you want to create a passive income ahead of retirement. It means you can invest in more shares or take the cash as income, although the former will help you build a shares portfolio far more quickly, especially if you have no savings. The yield has been pushed down by recent strong share price growth, but still provides over 4%, which is more or less in line with the FTSE 100.

A slow and steady, year-on-year increase in the dividend gives me confidence that it’s ideally placed to generate a passive income to help you retire richer.

That, alongside the ability of investment trusts to hold reserves to see investors through any leaner years, makes them potentially very financially rewarding and probably the cornerstone of a good investment portfolio. This is why I also like the look of this second investment trust. 

Another above-average yielder

Dunedin Income Growth Investment Trust (LSE: DIG) is another one that is yielding over 4%. It also holds a number of the same higher-yielding companies as Merchants Trust, but it has different top holdings, such as Assura, RELX and Diageo

Besides the yield, one of the big perks of this investment trust is that it trades at a discount to what it’s actually worth. Good for investors who want to buy up the shares. The discount is 7%, which is only a little less than the 12-month historical average discount that has been nearer 8%. Again, a rise in the share price following the market bounce post-election has contributed to the narrowing of the discount.

Cumulatively over the three years to 30 November 2019, the shares rose by a third and the dividend has been rising year-on-year and is paid quarterly.

Overall I think these investment trusts are ideal for someone approaching the end of their working life who wants to retire better off. They provide diversified access to a large number of larger companies and a generous dividend yield that is often more than the average for the FTSE 100. 

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.

Andy Ross owns shares in Merchants Trust. 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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »