Buying an investment trust can be a great way to generate income from the stock market. Not only do they provide a high level of diversification but they’re also quite cost-effective.
Here, I’m going to highlight two investment trusts I’d buy for income. Both pay investors regular dividends and have delivered strong total returns (capital gains and income) over the long run.
A top UK investment trust for income
One of my top picks for income is the Murray Income Trust (LSE:MUT). Its aim is to provide high and growing income with some capital growth by investing mainly in UK shares. The trust, which is managed by Aberdeen Standard Investments, has a 5-star rating from research group Morningstar.
Murray Income Trust is classified as a ‘Dividend Hero’. This means it’s increased its dividend payout every year for at least 20 years. Last year, it paid out 34.25p per share to investors. At the current share price, that payout equates to a yield of about 3.9%.
It’s not just the yield that’s impressive here. Overall returns have also been very good. Over the five years to the end of May, MUT’s net asset value (NAV) rose 60.1%. By contrast, the FTSE All-Share index returned 40.5% over the same period.
One thing I like about this trust is that it has a balanced portfolio. It’s not just stuffed full of high-yielding stocks. There’s also a nice mix of dividend growth shares, such as Diageo and Unilever, some higher-yield plays, such as BHP and National Grid, as well as some international dividend stocks such, as Coca-Cola.
However, It’s worth pointing out that while MUT has a great dividend track record, dividends aren’t guaranteed. Past performance isn’t an indicator of future returns. At times, this trust has underperformed the market.
Overall though, there’s a lot to like about MUT, in my view. I see it as a great investment trust for income. Ongoing charges are 0.64% per year.
A global focus
Another investment trust I’d buy for income is Baillie Gifford’s Scottish American Investment Company (LSE: SAIN). This trust, which also has a Morningstar 5-star rating, invests globally. It aims to be core for private investors seeking income.
Like MUT, Scottish American is a Dividend Hero. Last year, it paid out 12p per share in dividends. At the current share price, that equates to a yield of 2.4%.
While the yield here may seem a little underwhelming, the total performance of the trust has been very strong in recent years. Over the five years to 31 May, its NAV rose 113.9%, beating the FTSE All-World Index (which returned 103.4%) comfortably.
This trust also has a balanced portfolio. Unlike many other global equity products, it doesn’t have a huge US bias. At end-May, around 30% of the trust was invested in US stocks, while 32% was in European stocks and 15% was in Asian stocks. Some names in the portfolio include Microsoft, Roche, and Procter & Gamble.
It’s worth noting that some of the stocks in this portfolio are more growth-focused. This means that during market turbulence, this trust could be more volatile than some other income-focused investment trusts.
As part of a balanced investment portfolio however, I see it as a good pick for income. Ongoing charges are 0.70% per year.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Diageo, Microsoft, and Unilever. The Motley Fool UK owns shares of and has recommended Microsoft. The Motley Fool UK has recommended Diageo, National Grid, and Unilever. 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.