FTSE-busting yields

At 8.5%, the forward dividend yield on Legal & General (LSE:LGEN) shares is a proper show-stopper. This is twice the current average for the broader FTSE 100 (3.4%).

Truth be told, investors like me have become used to the enormous yields the company offers. Excluding pandemic-affected 2020, dividends here have risen for 13 straight years, helping it to maintain those market-beating payouts:

Legal & General’s resilience is thanks in part to its broad diversification. With operations spanning insurance, asset management, and retirement products, earnings and cash flows aren’t overly dependent on strength in one sector.

Furthermore, while the UK and US are critical markets for the company, its wide geographic footprint covering North America, Asia, and Mainland Europe helps cushion weakness in one territory.

Like any financial services business, Legal & General is highly sensitive to broader economic conditions, and a backdrop of high inflation and weak growth has impacted its share price performance since 2020.

This remains a risk as trade tensions disrupt economic conditions and consumer spending. But on the plus side, I’m optimistic the firm’s prudent capital management and strong balance sheet should at least help it continue paying large dividends. Its Solvency II capital ratio was 232% as of December.

Over the longer term, I expect Legal & General shares to enjoy strong momentum as demographic changes — and the growing importance of financial planning — boost demand for its products.

Top trust

The Brunner Investment Trust (LSE:BUT) doesn’t offer the same sort of jaw-dropping yields as Legal & General shares. But one of the London Stock Exchange‘s greatest records of dividend growth make it worth serious attention in my book.

The FTSE 250 trust has hiked shareholder payouts for 53 years on the spin. They’ve kept growing despite crises like banking sector meltdowns, global pandemics, and sovereign debt crises, providing an effective hedge against inflation.

Brunner’s resilience reflects its exposure to a broad range of blue-chip multinational companies. It currently holds shares in 56 different businesses, from tech giant Microsoft and card provider Visa, to oil producer Shell and energy manager Schneider Electric.

The trading location of its shares is also well spread out, as the chart below shows. This provides some protection if, say, demand for US shares continues to decline due to political uncertainty there.

I’m happy to overlook Brunner’s handy-if-unspectacular 1.7% forward dividend yield. As a bonus, at £13.95 per share, the trust trades at a 2.8% discount to its net asset value (NAV) per share, adding an extra little sweetener.

Investors need to consider Brunner’s current high weighting to cyclical sectors. For instance, around 23% of the trust is invested in both financials and technology stocks, leaving it somewhat vulnerable to a fresh economic downturn.

But the trust’s proven long-term resilience gives me optimism that it can ride out any such trouble. It’s delivered an average annual return of 10.7% since 2015.

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A big part of this is due to their exceptional track records. However, the future also looks bright.

Let’s take a closer look at them.

Investment trusts for the win

Alliance is one of the largest and oldest trusts in the UK, with roots stretching back to the 1800s. The trust invests in some of the most prestigious businesses across the world.

Similarly, Brunner is also set up as an investment trust, with the same aims. It looks to invest in UK and global businesses to provide its investors with above-average returns.

I’m a fan of investment trusts, as they’re usually run by expert stock pickers. Plus, by investing in a multitude of businesses across the planet, they offer me diversification I may not get by investing in individual stocks.

My investment case

Both Alliance and Brunner have increased their respective dividends for over 50 years! This is remarkable, in my view.

I am aware that the past isn’t an indicator of the future. Plus, dividends are never guaranteed. However, when looking to build wealth, I prefer dividend stocks with a good track record of shareholder value and consistent returns.

Looking specifically at Alliance, I’m excited about its future prospects. The business has a big chunk of its holdings in burgeoning US tech stocks. These include names such as Meta and Microsoft, as well as Nvidia. The artificial intelligence (AI) boom could present excellent growth opportunities. Plus, as the digitization of the world ramps up, these firms, as well as the trust, could continue to grow earnings and returns.

Alliance shares trade on a price-to-earnings ratio of just five, making them look great value for money. Plus, a dividend yield of just over 2% could grow nicely.

Moving over to Brunner, with similar holdings, the business also focuses on other sectors that could provide good growth and returns. Some of these sectors include financial services, as well as industrial and infrastructure.

From a fundamentals view, the shares are a bit dearer, but still attractive, trading on a P/E ratio of 14. A dividend yield of 1.7% could grow, as well as continued increases in payouts, in line with its previous track record.

Risks and final thoughts

For Alliance, high exposure to the tech stocks in the US is risky. This is because economic volatility across the pond could hurt these businesses, and their earnings could be dented by any negativity. We’ve recently seen turbulence in the US hurt many stocks.

Looking at Brunner’s risks, the similarities continue when looking at the bearish aspects. I’m concerned that exposure to cyclical sectors such as financial services could hurt the trust’s earnings and level of returns. For example, financial stocks have been hurt across the globe due to higher interest rates, inflation, and geopolitical issues.

Overall, I’m interested in dividend shares that offer consistent returns, and not just a flashy high yield. For that reason, I’ll be looking to buy shares in both these trusts when I next can.

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Here, I’m going to highlight three investment trusts that have excellent track records. I think they could be worth considering as part of a diversified SIPP portfolio.

Outstanding performance

First up is JP Morgan Global Growth & Income (LSE: JGGI). This is a global equity product that’s managed by banking powerhouse JP Morgan. Its aim is to combine the best ideas from the company’s global investment platform with an innovative dividend policy to deliver both gains and income.

This trust has delivered outstanding performance of late. For the five-year period to the end of 2023, for example, its share price rose 112.7% (versus 73.9% for its benchmark).

What I like about this trust is that it’s not an ‘index hugger’. Within the top 10 holdings, there are quite a few stocks that won’t be found in the top 10 holdings of a global tracker fund, such as drinks giant Coca-Cola and chip manufacturing equipment maker ASML.

Of course, this stock-picking approach could backfire. However, I’m encouraged by the excellent long-term track record here. For the 10-year period to the end of 2023, the trust beat its benchmark by about 90%.

Ongoing charges are 0.5%.

10 professional stock pickers

Next, we have Alliance Trust (LSE: ATST). Now, this trust is a little different. That’s because its investment manager, Willis Towers Watson, has appointed 10 different professional investors – all with different styles – to pick shares for the portfolio.

This unique approach seems to be working. For the five years to the end of 2023, the trust delivered a total shareholder return of 79.3% versus 73.9% for the MSCI ACWI index.

I really like the portfolio here. At the end of 2023, the top 10 holdings included names such as Microsoft, Amazon, and Nvidia. In today’s digital world, these companies are just going from strength to strength.

It’s worth noting that this trust does have a large weighting to the US, which adds some risk.

I actually think this geographic tilt is smart though. Today, the US is home to many of the world’s most dominant businesses.

Ongoing charges are 0.61% a year.

A dividend hero

Finally, I want to highlight the Brunner Investment Trust (LSE: BUT).

This is a diversified product that invests in both UK and global equities and aims to provide growth and income.

This trust has a great track record on the growth front. For the five years to the end of 2023, its share price rose 93.5%.

It also has an excellent track record on the dividend front. Believe it or not, it has increased its dividend every year for over 50 years now (meaning it’s classified as a ‘Dividend Hero’).

It’s worth pointing out that this trust does have quite a bit of exposure to cyclical areas of the market like industrial and financial companies. This adds some risk.

Overall though, I think there’s a lot to like about it.

Ongoing charges are 0.63%.

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Global equities

The Brunner Investment Trust (LSE: BUT) is one such fund. With shares trading at a discount of 12% against its net asset value per share of 844p, prospective investors have the opportunity to pick this global equities trust for less than the sum of its parts.

This doesn’t seem like a big discount in comparison to some other trusts, but it does look unwarranted given that the fund owns a highly liquid portfolio of global equities and has a relatively low ongoing charges ratio of 0.73%.

Capital and dividend growth

The fund aims to provide its investors with both capital growth and growing dividends by investing in companies all over the world, seeking out opportunities for growth and reliable dividends wherever they may be. It has 45 years of consecutive years of dividend increases under its belt, giving it one of the strongest track records of dividend growth in the investment companies sector.

With a portfolio of 74 stocks, Brunner has a well-balanced portfolio, with no sector accounting for more than a quarter of its total asset value. Big positions include Royal Dutch Shell (3.1%), Microsoft (3%), Abbvie Inc (3%), UnitedHealth (2.9%), and BP (2.2%).

Multi-manager strategy

Alliance Trust (LSE: ATST) has an even longer track record of boosting shareholder payouts, with 50 years of consecutive dividend growth. That’s an impressive feat, but what really sets it apart from its peers is its unusual investment strategy.

After years of lagging investment returns, the company has shaken up in its strategy by adopting a new multi-manager model. Although there are a few other investment companies which also utilise a multi-manager approach, they tend to suffer from closet tracking and high costs.

Alliance Trust intends to overcome flaws in the traditional multi-manager model, by targeting ongoing charges ratio at below 0.65% — less than half the typical ongoing charges figure for a multi-manager fund. It also intends to avoid over-diversification, which brings closet tracking, by hiring external managers to select only high-conviction picks with specific investment objectives, reducing its likelihood of generating index-hugging performances.

Investment performance

It’s too early to see whether this change in its investment strategy would deliver outperformance for shareholders over the long term. So far though, the results are encouraging. The fund reported a net asset value total return of 11.8% since the change in strategy in April 2017. This compares favourably against the 8.2% return from its MSCI All Country World Index benchmark over the same period.

Alliance Trust currently trades at 6% discount against its NAV, with shares in the fund yielding 1.7%.

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Half a century of increases 

A great example is the Brunner Investment Trust (LSE: BUT). This investment group, which reported its results for the year to the end of November this morning, has paid a dividend to investors for 46 years and it has increased the payout every single year. Today management continued this record, announcing a 4.4% increase in the total payout for the year to 16.5p, well covered by earnings per share of 18.4p. The increase, coupled with the firm’s record of steady payout growth, shows how valuable investment trusts can be for income investors seeking a steady income that’s growing in line with inflation.

The full-year distribution suggests a dividend yield of 2.2% which is hardly high-yield territory, although I believe that the record of payout increases more than makes up for this. 

Brunner is well diversified with three of its top five holdings based in the US and more than two-thirds of its holdings being international securities. Also, the management fee is a relatively attractive 0.8% per annum, and the shares trade at a 9.9% discount to net asset value. Overall then, I believe Brunner, with its low management fee, international diversification and a near 50-year record of steady dividend increases, is an excellent investment for investors looking to protect their portfolio in the current environment.

Student income 

Another income investment I’m positive on the outlook for is Empiric Student Property (LSE: ESP). Strictly speaking, this is not a pureplay investment trust. It is a real estate investment trust which is virtually the same apart from its requirement that the majority of its income must be derived from property.

Unfortunately, of late the company has had to curtail its expansion plans after several years of rapid growth have resulted in a bloated cost structure. However, management is now taking actions to reduce costs, and according to a trading update published today, administration costs for the second half of 2017 were reduced by 21% from the first half. Meanwhile, bookings for its student accommodation properties are now at 40% for the 2018/19 academic year, which is “significantly ahead of last year.“

Management also noted in today’s trading update that the value of the group’s property portfolio was £890m at the end of December, up by 23.4% for the year. Based on the last reported net asset value, the shares are trading at only 0.95 of tangible book value.

City analysts are expecting the trust to announce a dividend of 5.55p per share for 2017 and 5p for 2018, giving a forward dividend yield of 6%, nearly double the market average.

All in all, Empiric offers a defensive income stream from property, trades at a discount to its net asset value and the trust’s dividend yield is a healthy 6%. This is why I believe that if you are looking for income, this company will make a great addition to your portfolio.

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