Yet many people do end up trying to live off the State Pension and struggle through retirement, simply because they’ve no retirement savings. According to recent research from Equiniti, around 25% of single pensioners are currently living off State Pension payments alone.

If the thought of trying to survive on less than £170 per week in retirement worries you, it’s a good idea to do something about it sooner rather than later. With that in mind, here’s a look at a simple strategy that could boost your retirement income by 25%.

An easy way to generate extra income

One of the easiest ways to generate a little extra income in retirement is through income-focused investments trusts. These are investment funds managed by professional portfolio managers (meaning you don’t need to worry about picking stocks yourself) and generate steady income by investing your money in large, well-known companies that are listed on the stock market.

Here in the UK, there are a number of investment trusts that pay high levels of income and have excellent long-term track records. For example, three that I believe are well suited to retirees are the City of London Investment Trust, the Murray Income Trust, and the Merchants Trust. These are all listed on the London Stock Exchange, meaning you can buy them through an online broker such as Hargreaves Lansdown.

All three have been around for a long time (the Merchants Trust was founded in 1889!) and all have excellent track records when it comes to paying their investors regular income, or ‘dividends’. All three also offer high dividend yields right now. For example, Merchants Trust currently yields 5.4%, while City of London and Murray Income yield 4.3% and 3.9%, respectively. The average yield between them is a healthy 4.5%.

Boosting your retirement income by 25%

So, how much money would you have to invest if you were looking to generate income of £2,191 per year (25% of the State Pension) in retirement?

Well, according to my calculations, if you put together a portfolio that consisted of these three investment trusts, you would need a total lump sum investment of around £48,700 to generate annual income of £2,192. Assuming these trusts were held in a Stocks & Shares ISA, the income would be tax-free.

In other words, with an investment of less than £50,000 you could potentially boost your retirement income by 25%. So you’d be looking at a total income of £10,959 per year, as opposed to just £8,767 from the State Pension alone. That could certainly make a difference to your lifestyle.

Of course, building up a lump sum of £48,700 in the first place is likely to be challenging for many. However, with a little advanced planning, it’s certainly possible. The key, as always, is to start saving as soon as possible.

The post Worried about the State Pension? This strategy could boost your retirement income 25% appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in City of London Investment Trust, Murray Income Trust, and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

With that in mind, here’s a look at two investment trusts that I feel could be well suited to retirees. Both offer a nice mix of income, capital growth, and security.

Murray Income Trust

The first pick I want to highlight is the Murray Income Trust (LSE: MUT), which was founded all the way back in 1923. Its objective is to generate a high and growing income stream for its investors combined with a little bit of capital growth. This trust has a four-star rating from financial services group Morningstar.

I like this trust for several reasons. For starters, it’s mainly focused on blue-chip FTSE 100 dividend stocks. For example, top holdings in the portfolio currently include the likes of Diageo, Prudential, GlaxoSmithKline, and Unilever. This gives the portfolio a nice ‘defensive’ tilt.

Second, the trust is allowed to invest 20% of its capital internationally, which is a handy feature as there are many fantastic companies listed outside the UK. Currently, the trust has exposure to international companies such as Microsoft and healthcare giant Roche.

Third, not only does the trust have a high dividend yield (3.9%) but it also has a fantastic dividend growth track record having increased its dividend for 45 consecutive years now. That makes it an Association of Investment Companies (AIC) ‘dividend hero’ – the prestigious classification for trusts that have registered 20 or more consecutive dividend hikes.

With fees of just 0.69% per year, I think this could make an excellent addition to a retiree portfolio.

Merchants Trust

Another one that I believe could be well suited to retirees is the Merchants Trust (LSE: MRCH). Founded in 1889, this has a specific focus on generating high income for its investors as well as some capital growth, and it’s also an AIC dividend hero, having registered 37 years of consecutive dividend growth now.

An analysis of the MRCH portfolio reveals that it also has a strong focus on FTSE 100 dividend stocks. For example, the top three holdings at the end of May were Royal Dutch Shell, GlaxoSmithKline, and HSBC Holdings. It’s these kinds of high-yielding income stocks that have helped the trust to pay extremely generous dividends to its investors in recent years – the current yield is a fantastic 5.3%. Dividends are paid quarterly too, which is an added benefit.

With its high dividend yield and ongoing charges of just 0.59% per year, I think the Merchants Trust could be an attractive proposition for investors who are looking to supplement their income in retirement while not taking big risks with their money. 

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Edward Sheldon owns shares in the Diageo, Unilever, Prudential, Murray Income Trust, Royal Dutch Shell and GlaxoSmithKline. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline, Microsoft, and Unilever. The Motley Fool UK has recommended Diageo, HSBC Holdings, and Prudential. 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.

Easy, easy

It is far easier to invest in stocks and shares, plus you can take all your returns free of tax through your annual ISA allowance.

Lots of ordinary savers were relying on buy-to-let to generate income in retirement, but you can do this with a balanced portfolio of dividend-paying stocks and shares, or collective funds such as investment trusts and unit trusts. These five generate income of more than 4% a year and would create a balanced retirement portfolio on their own.

The list has been assembled by Laura Suter at investment platform AJ Bell, but many are regular Fool favourites, notably City of London Investment Trust (LSE: CTY), launched in 1891 and now run by Janus Henderson fund manager Job Curtis, who has been at the helm for 27 years.

Fool writer Ed Sheldon picked out this defensive dividend-paying trust in January. He praised it for increasing its dividend for more than 50 consecutive years while adding that Curtis offers a degree of stability and a consistent investment style. 

High yield, low charges

The trust targets UK equities and its top 10 holdings contain plenty of familiar names – including Royal Dutch Shell, HSBC Holdings, BP, Diageo, Lloyds Banking Group, British American Tobacco and GlaxoSmithKline. It currently yields 4.5% and has an ongoing charges figure of just 0.41% a year, which means you keep more of the income yourself.

The UK market offers some of the most generous dividends in the world, with the FTSE 100 currently yielding around 4.5% income a year. This makes it a rewarding hunting ground for income-paying funds, such as Murray Income Trust (LSE: MYI), another on the list. Again, you will notice some familiar names, including Prudential, AstraZeneca, Rio Tinto and Unilever. The yield is 4.4% and the ongoing charges figure is 6.9% a year.

Steady income

Ed Sheldon recently praised this one too, noting at the time that it was trading at a large discount of 9.6% to its Net Asset Value, although this has since narrowed to 6% as stock markets and investor sentiment have recovered. The market recovery has also boosted performance, with Murray Income Trust rising 10% so far this year.

Investment trusts are particularly attractive for income seekers because they are able to hold over some of their profits to supplement income in leaner years, but it is still worth highlighting three unit trusts that Suter has selected.

Evenlode Income is mostly invested in the UK but has 10% US exposure, while JP Morgan Emerging Markets Income offers greater global diversification, while Artemis Strategic Bond balances your stock market holdings with income from a global spread of government and corporate bonds. And they’re all far easier to buy and manage than a buy-to-let property.

The post Why would I bother with buy-to-let when these 2 investment trusts yield 4.5% a year? appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, Diageo, HSBC Holdings, Lloyds Banking Group, and Prudential. 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.

Today, I’m looking at two of my favourite dividend-paying investment trusts. Both have a ‘defensive’ focus, meaning they should offer resilience in the current market environment.

City of London Investment Trust

For a ‘core’ investment trust holding, it’s hard to look past the City of London Investment Trust (LSE: CTY), in my view. The trust has been around since 1891, meaning that it has weathered all kinds of market conditions, and it has increased its dividend for over 50 consecutive years, which is an excellent achievement. It’s also been managed by the same portfolio manager, Job Curtis, for around 27 years now, meaning that it offers a degree of stability and a consistent investment style.

Curtis manages the trust with a conservative approach to the stock market, generally focusing on well-established, dividend-paying companies that have global operations, remaining diversified, and never taking unnecessary risks. In my opinion, this approach is ideal for current market conditions as economic uncertainty is elevated right now. The top five holdings at the end of November were Shell, HSBC, BP, Diageo, and Unilever – all companies which have been around for a long time and have good dividend track records.

Another advantage of this particular trust is its high yield, as for the current financial year, it is paying investors four quarterly dividend payments of 4.55p per share, which at the current share price equates to a yield of 4.8%. With an ongoing charge of just 0.41%, I see CTY as an excellent UK equity core holding.

Murray Income Trust

Another investment trust that has been around for a long time (since 1923) is the Murray Income Trust (LSE: MUT). Like CTY, this one has a strong focus on dividend-paying companies, and it aims to provide investors with a high and growing income stream, along with capital growth as well. It’s predominantly focused on UK equities, but it also has a little bit of exposure to stocks in Europe and the US too.

Looking at the trust’s portfolio, the top five largest holdings at the end of November were Unilever, AstraZeneca, Diageo, BP, and Shell – similar to CTY and all solid picks for current market conditions. With over a quarter of the portfolio invested across the consumer defensive and healthcare sectors, the trust should be able to offer a degree of resilience if the stock market continues to fall.

Last year, MUT paid investors a total of 33.25p per share in dividends, split over four quarterly payments, which translates to a trailing yield of 4.6% at the current share price. That’s a decent yield in today’s low-interest-rate environment and significantly higher than the yield from the FTSE 100. With an ongoing charge of 0.72%, I think this trust is a decent pick for 2019, especially as it currently trades at a 5% discount to its net asset value.

The post Two ‘defensive’ dividend investment trusts I’d buy for 2019 appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in City of London Investment Trust, Murray Income Trust, Unilever, Diageo and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended AstraZeneca, Diageo, and HSBC Holdings. 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.

Investment trusts, which are companies that trade like regular shares but also own a whole portfolio of stocks themselves, can be a great way of doing this, as many trusts pay shareholders healthy dividends on a regular basis.

Today, I’m profiling two dividend-paying investment trusts that could be worth considering if you’re looking for a little extra income in retirement. Both have excellent dividend track records.

Edinburgh Investment Trust

Launched in 1889, the Edinburgh Investment Trust (LSE: EDIN) invests primarily in UK stocks. Its objectives are to grow its Net Asset Value per share faster than the growth of the FTSE All-Share Index, while also growing its dividends at a rate higher than UK inflation. In other words, it aims to provide investors with capital growth and rising dividends. Previously run by star portfolio manager Neil Woodford, the trust is currently managed by his successor at Invesco, Mark Barnett.

Looking at the trust’s portfolio, it’s clear that there’s a strong focus on large-cap stocks. For example, the top 10 holdings currently include a number of major FTSE 100 companies such as British American Tobacco, BP, Legal & General Group and BAE Systems. It’s also worth noting that the portfolio manager appears to employ a value approach to investing and picks stocks that trade at lower valuations and offer generous dividend yields.

Speaking of dividends, the trust is paying investors 26.6p per share this year (paid quarterly) which, at the current share price of 660p, translates to a yield of 4%. Fees are low at just 0.55% per year.

Given that this trust currently trades at a near-10% discount to its assets, I think it could be a great play for those looking for income in retirement.

Murray Income Trust

Another trust that has been around for a long time (launched in 1923) and also aims to provide both capital growth and rising income, is the Murray Income Trust (LSE: MUT). This year, its payout to shareholders is 33.25p per share, which equates to a yield of 4.4% at the current share price of 750p.

Like Edinburgh Investment Trust, this also has a large-cap dividend stock focus, which makes it an ideal holding for lower-risk investors seeking income in retirement. Top holdings currently include Unilever, British American Tobacco, Prudential and Royal Dutch Shell. The fund also has the flexibility to invest 20% of its capital internationally, and currently holds names such as Microsoft, Roche and Nordea within its top 20 holdings.

This trust currently trades on a large discount of 9.6% to its Net Asset Value, as its performance over a five-year time horizon has been a little disappointing, and investors have dumped it. However, given the large number of high-quality stocks within the portfolio, and the high dividend yield on offer, I think that discount offers considerable value. Ongoing charges are 0.69% per year.

The post Need extra income to supplement your State Pension? Consider these dividend investment trusts appeared first on The Motley Fool UK.

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Edward Sheldon owns shares Unilever, Royal Dutch Shell, BAE Systems, Prudential, Legal & General Group and the Murray Income Trust. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Prudential. 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.

Today, I’m profiling two investment trusts that could make excellent core holdings for beginner investors. 

Bankers Investment Trust

The Bankers Investment Trust (LSE: BNKR) aims to maximise returns for investors by trading in a diversified portfolio of international shares. The portfolio manager has the flexibility to invest in any geographic region and focuses on companies that generate significant cash flow and pay regular dividends. The trust also aims to pay a regular dividend to shareholders that grow at a rate in excess of RPI inflation.

An analysis of the current portfolio reveals that BNKR has the most exposure to US, UK and Japanese equities. The top sector weightings are financials and technology and the top five holdings include BP, Apple, British American Tobacco, American Express and Microsoft. I like the fact that while this trust has exposure to US stocks, it’s not overly exposed to some of the more expensive tech stocks. 

The trust’s performance over the last five years to the end of February has been excellent, with the net asset value (NAV) rising a healthy 83%. The current dividend yield on the trust is 2.25%, with dividends paid quarterly. Fees are very reasonable, with the ongoing charge a low 0.44%. So overall, I believe this trust is an excellent choice for beginner investors.

Murray Income Trust

Another excellent choice for those looking to keep things simple is the Murray Income Trust (LSE: MUT). This trust places a strong focus on income/dividends and aims to provide investors with a high and growing income stream, along with some capital growth as well. It invests predominantly in UK equities although it does have the flexibility to invest 20% of its assets in international stocks.

Looking under the bonnet, the trust currently has an 83% weighting to UK stocks, with smaller allocations to counties such as Switzerland, Sweden, Denmark and the US. The largest sector weightings here are financials and consumer defensive with the top five holdings including Unilever, AstraZeneca, British American Tobacco, Prudential and Royal Dutch Shell.

The Murray Income Trust also pays dividends on a quarterly basis and the current yield is a healthy 4.5%. Over the last five years to the end of February, the portfolio’s net asset value (NAV) increased 39%. Ongoing fees are reasonable at 0.72% per annum.

It’s worth noting that this trust currently trades with a discount of 7% to the assets in the portfolio. As a result, I believe now could be an excellent time to add the trust to an ISA.

The post Two top investment trusts for a starter ISA portfolio appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in the Murray Income Trust, Unilever and Royal Dutch Shell.  Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK owns shares of and has recommended Apple and Unilever. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool UK has recommended American Express, AstraZeneca, BP, and 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.

However, here are two investment trusts which appear to be well-managed and that could therefore offer high total returns in the long run. They could continue to deliver impressive investment performances for their investors.

Strong performance

Reporting on Monday was The Scottish Investment Trust (LSE: SCIN). The company was able to deliver a mix of capital growth and income during the year to 31 October 2017. Its share price total return was 12.8%, while its net asset value per share increased by 11%. It was also able to deliver a dividend growth rate of 11.1% plus an additional special dividend of 5p. This could prove useful if inflation remains stubbornly high, although the company’s dividend yield of 1.6% remains at just over half of the rate of inflation.

Looking ahead, the company appears to be relatively cheap. It trades at a discount of 8% to its net asset value. This suggests that there could be upside potential, while the company’s holdings also seem to be undervalued themselves. This is at least partly because of the investment style adopted by the Trust. It focuses on investing in unfashionable companies which have generally been overlooked by most investors. This could provide a wide margin of safety that could translate into capital appreciation.

With a total of 54 holdings, the portfolio is now more concentrated than it was a year ago. Back then it had 70 holdings, and this suggests that there could be even less correlation between the Scottish Investment Trust and the wider stock market. Therefore, as well as relatively high returns, it could also be a means of diversifying away from the performance of the wider index.

Income potential

Also offering an upbeat outlook at the present time is the Murray Income Trust (LSE: MUT). It has a dividend yield of 4.6%, which is over 50% higher than the current rate of inflation. This should help its investors to overcome the threat of higher inflation, while a discount of 7% to its net asset value could mean that it offers a wide margin of safety. With stock markets being generally high, this could be appealing to a range of investors.

Among the Murray Income Trust’s top 10 holdings are defensive shares such as GlaxoSmithKline and British American Tobacco. This suggests that the trust’s outlook may be relatively stable. However, there are also growth opportunities through other top 10 holdings such as Prudential and Unilever. As such, it could be argued that the company offers a mix of defensive growth prospects. With its focus on UK equities, investors may continue to benefit from a weak pound in future.

The post 2 bargain investment trusts I’d buy and hold for 10 years appeared first on The Motley Fool UK.

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Peter Stephens owns shares in GlaxoSmithKline, Prudential, Unilever and British American Tobacco. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline 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.

Investment trusts are publicly traded companies that own a portfolio of stocks. They’re designed to generate profits for shareholders by investing in the shares of other companies. They can be bought and sold in the same way as regular shares, and are a fantastic way to add diversification to your portfolio. And many reward their shareholders with big dividends, on a regular basis.

Today, I’m looking at two investment trusts that currently have higher yields than the FTSE 100 index.

Murray Income Trust

Founded in 1923, the Murray Income Trust’s (LSE: MUT) objective is to achieve a high and growing income, combined with capital growth. It’s run by Aberdeen Asset Management and invests mainly in UK equities, although it does have the flexibility to invest internationally.

At the end of October, the trust’s five largest holdings were Unilever (4.6%), British American Tobacco (4.1%), AstraZeneca (4%), Prudential (3.8%) and GlaxoSmithKline (3.7%). BP (3.5%), HSBC (3.4%) and Royal Dutch Shell (3.3%) also made the top 10. As you can see, that’s a strong focus on blue-chip FTSE 100 names, with those eight companies making up almost a third of the portfolio.

Key international stocks in the top 20 holdings included Swiss pharmaceutical giant Roche, Nordic financial services group Nordea, and Microsoft.

The trust has a fantastic growth track record, having increased its dividend for 43 consecutive years now. For 2017, investors will receive 32.75p per share, which is a yield of 4.3% at the current share price, higher than the FTSE 100’s trailing yield of 2.9%. Dividends are paid on a quarterly basis, which is great news for income investors seeking regular cash returns. 

With an ongoing charge of just 0.76%, this trust looks to be a good way to gain exposure to some of the FTSE 100’s largest companies, and pick up an attractive dividend yield in the process.

Merchants Trust

Another excellent trust for dividend investors is the Merchants Trust (LSE: MRCH). Founded in 1889 and managed by Allianz Global Investors, the trust aims to provide above-average income, as well as income growth and long-term capital growth, by mainly investing in higher-yielding FTSE 100 stocks.

An analysis of the trust’s top 10 holdings, also reveals a list of blue-chip names. Royal Dutch Shell was the top holding at 8.2% of the portfolio at the end of October, followed by GlaxoSmithKline (5.9%), BP (5.8%), HSBC (4.7%) and Lloyds Banking Group (3.4%). Other key holdings included BHP Billiton (3.3%), Prudential (2.9%), and Legal & General Group (2.8%).

Looking at those names, it’s clear to see that the Merchants Trust favours big dividend payers. Indeed, portfolio Manager Simon Gergel has said: “Income is our focus. We are income seekers and we make no apology for buying shares that provide the high yield we require. It’s why so many private investors hold the trust.”

Like the Murray Income Trust, Merchants has an excellent dividend growth history, having increased its payout for 35 consecutive years now. Investors received 24.2p per share for 2017, which is a yield of a high 5.1% at present. With ongoing charges of just 0.63%, this trust is a great option for income investors, in my opinion.

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Edward Sheldon owns shares in Royal Dutch Shell, GlaxoSmithKline, Lloyds Banking Group and Legal & General Group. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, BP, HSBC Holdings, Lloyds Banking Group, and 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.

When it comes to UK-focused investment trusts that offer both growth and income, Jupiter UK Growth Investment Trust (LSE: JUKG) initially looks to be an attractive investment. Over the past five years, the managers of this firm have presided over a return of 65% excluding dividends. 

At the time of writing the trust offers a dividend yield of 2.1% and trades at a 3% discount to net asset value. 

Outperforming the market 

Returns for the year ended June 30 showcase Jupiter’s potential. For the year, the firm’s net asset value per share rose by 26% to 334p from 265.4p the year before. This beat its benchmark, the FTSE All-Share Index, which reported a total return of 18%. According to Jupiter’s press release on the matter, its manager’s stock-picking and asset allocation skills were “shown to good effect,” during the year and the portfolio benefitted from a “strategic lack of exposure” to the oil and gas sector.

I believe that Jupiter is a great way to play the success of the UK economy. The fund has more than 20% of assets devoted to its top four holdings, Legal and General, Lloyds, Barclays and Sirius Minerals, all of which are UK market champions with bright outlooks. Other companies featured in the top 10 holdings are Taylor Wimpey and Thomas Cook, both of which offer growth and income. 

However, despite Jupiter’s attractive qualities, the one drawback that I see is the trust’s fee schedule. Annual charges are 1.2% and the managers command a performance fee of 15% on profits. Few other investment trusts charge such a hefty performance fee. Still, for exposure to some of the UK’s fastest growing large-caps, Jupiter looks to me to be an attractive buy. 

Income and growth 

Murray Income Trust (LSE: MUT) does not charge a performance fee, and the trust’s annual operating expenses are only 0.7%, a little more than half of those charged by Jupiter. 

As its name suggests, Murray is income-focused. The trust currently supports a dividend yield of 4.2% and trades at a discount to net asset value of 8.5%. The portfolio is built with income in mind. The top holdings are Unilever, GlaxoSmithKline and British American Tobacco with other FTSE 100 income champions making up the rest of the portfolio. 

As a diversified income play, Murray ticks all the boxes. The trust has low fees, a well-diversified portfolio and a dividend yield that’s above the FTSE 100 average of around 3.8%. What’s more, there’s scope for capital growth within the portfolio. Growth stocks such as British American Tobacco and Unilever have outperformed the FTSE 100 over the past five years (by 14.5% and 62.5% respectively), and I believe that this trend is set to continue meaning that there’s the prospect of both capital growth and income from Murray. 

So, if you’re looking for an income fund that also has the potential for capital growth to add to your retirement portfolio, Murray deserves your attention. 

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Rupert Hargreaves owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.

As such, buying investment trusts which offer a high dividend yield could be a shrewd move. Here are two trusts that could beat inflation – even if it continues to move higher over the medium term.

Growth potential

The two investment trusts in question are Dunedin Income Growth (LSE: DIG) and the Murray Income Trust (LSE: MUT). They have dividend yields of 4.5% and 4.1% respectively. This means they are at least 150 basis points ahead of inflation at the present time. Even if the rate of growth of prices increases above 3%, they are very likely to deliver a real income return for their investors.

In addition, they both trade at a discount to their net asset values (NAVs). Dunedin Income Growth has a discount of 9%, while the Murray Income trust’s discount is around 7%. These figures suggest they may offer good value for money, with their share price growth of 9% and 6% respectively during the last six months showing they are able to perform relatively well versus their benchmarks.

Income outlook

Both trusts could help investors to counter the threat of inflation, not only through their current dividend yields, but also because of the companies they are invested in. While they generally hold UK-listed shares, the companies they own shares in have significant international operations. This may enable them to benefit from higher growth rates outside of the UK economy, as well as a weaker pound.

If sterling depreciates further then it would be unsurprising for both trusts to deliver improved share price performance. Dividends and share price valuations within the fund could gain a boost from currency fluctuations and this may lead to improved total returns for investors. And with international diversity comes a lower risk profile. This may help investors to overcome the potential risks from Brexit over the medium term.

Possible risks

Looking ahead, investment trusts focused on income could see their valuations come under pressure from a rising interest rate. If inflation continues to be relatively high then the Bank of England may seek to tighten monetary policy to some degree in order to cool-off rising prices. In such a scenario, other asset classes such as bonds may become relatively more attractive for income investors.

However, with the UK economy continuing to face an uncertain outlook, the prospect of a sustained interest rate rise seems unlikely. With diverse holdings, discounts to their NAVs and above-inflation income yields, Dunedin Income Growth and the Murray Income Trust seem to be worthwhile buys for the long term.

The post 2 dirt-cheap dividend investment trusts yielding more than inflation appeared first on The Motley Fool UK.

More reading

• 2 UK shares with over 20 years of consecutive dividend growth

Peter Stephens 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.