By holding a wide selection of shares, these trusts draw income from a mix of companies, industries and regions, thus reducing the impact of dividend shocks from one or two holdings.

With this in mind, here are three top investment trusts to consider. Today, their forward dividend yields comfortably beat the FTSE 100‘s 3.3% average.

Asia focus

Henderson Far East Income (LSE:HFEL) seeks to capture the enormous investment potential of Asian markets. From a dividend perspective it’s a high performer, having risen annual payouts each year since 2007.

Dividends are also on the large side, and for this year its yield is an enormous 10.2%.

Focusing just on Asia means it carries greater regional risk than global funds. Yet this strategy also leaves it laser-focused on some of the world’s largest and fastest-growing economies like China, India and the Philippines.

In total, this Henderson Fund holds shares in 73 different companies, ranging from cyclical shares such as Taiwan Semiconductor Manufacturing and HSBC to defensive stocks including Power Grid Corporation of India. This balances the portfolio nicely and provides a more stable return across the economic cycle.

Euro star

The European Assets Trust (LSE:EAT) has a more continental flavour than Henderson Far East Income. Some 70% of its funds are wrapped up in eurozone nations, with non-euro-trading European nations accounting for almost all the rest.

Again, this narrow regional strategy carries higher risk. But that’s not all — as with those other trusts we’ve discussed, more than 90% is allocated to shares in cyclical and sensitive industries. This can leave it vulnerable during economic downturns, as illustrated by recent dividend cuts.

The good news though, is that this allocation means each of the trusts can outperform when conditions improve. In this case, major holdings include building materials supplier Heidelberg Materials and Bank of Ireland.

European Assets Trust carries a robust 5.9% dividend yield for 2025. Despite its recent problems, I think it’s worth serious consideration.

Closer to home

The Chelverton UK Dividend Trust (LSE:SDV) has raised yearly dividends reliably since the early 2010s. For 2025, it carries a Footsie-busting 8.4%.

You’ll see this is another investment trust focused on a specific region. In this case, its success is highly geared to Britain’s economy which — if many forecasters are correct — could experience prolonged growth issues. Some 92% of it is tied up in UK-listed shares, which may be a problem.

Yet Chelverton’s ability to overcome similar issues over the last decade and deliver healthy regular growth is a good omen. Since 2020, annual payouts have grown at a decent yearly rate of 6.3%.

The trust holds shares in 66 companies in total spanning multiple sectors. These are as diverse as financial services, consumer goods, energy and telecoms, providing excellent balance.

The post 3 high-dividend investment trusts to consider for passive income appeared first on The Motley Fool UK.

Slash tax costs

The first step I’d take it to set up a tax-efficient investment vehicle. There are currently two on the market that protect individuals from both capital gains tax (CGT) and dividend tax.

The first is the Individual Savings Account (ISA). Under this category, investors can buy shares, trusts, and funds in a Lifetime ISA and/or a Stocks and Shares ISA.

The other option I have is to open a Self-Invested Personal Pension (SIPP).

Over several decades, these products can save individuals literally tens of thousands of pounds in tax. It’s one reason why the number of Stocks and Shares ISA investors has soared 27% in the past 10 years, to 3.8m today.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Diversify my holdings

With this set up, I’ll be looking to create a diversified portfolio that provides a strong and stable return year over year.

This will involve buying a mix of value, growth, and dividend stocks spanning multiple sectors and geographies. Such a strategy would help me to manage risk as well as capture a variety of growth opportunities.

I don’t necessarily have to buy a large number of shares to achieve diversification, however. I can also choose to buy a fund or a trust that invests in a multitude of different assets.

The European Assets Trust (LSE:EAT) is one such financial instrument. It’s been going since 1972, and invests in small and mid-sized companies across many different countries and industries.

On the downside, the trust’s focus on smaller companies may result in disappointing returns during economic downturns. This has been the case more recently as major European economies have stalled.

But with inflation fading, now could be a good time to open a position. As the trust comments: “Europe’s hugely dynamic smaller companies have generated some of the strongest returns among global stock markets over the past 15 years.”

I also think the trust offers excellent value at current prices. At 83.4p per share, it trades at a 13% discount to its net asset value (NAV) per share.

Investors can also grab a healthy 6.7% dividend yield at today’s prices.

Reinvest any dividends

The final step on my quest to create long-term wealth would be to reinvest any dividends I receive. This way, I can take advantage of compounding, where reinvested dividends generate additional income over time.

Essentially, this means I earn money on the interest (or dividends) I receive as well as on my initial investment. The more shares I buy, the more dividends I receive. Over time, this snowball effect can cause my portfolio to swell considerably.

Let’s say I invest £10,000 in a 5%-yielding dividend stock. In year one, I make £500 in dividends, which I use to buy more shares. This gives me a portfolio worth £10,500, which at the end of the second year will give me an improved £525 in dividends (based on that 5% yield).

After 10 years of growing my portfolio like this, I’d be receiving around £814 in annual dividends, assuming the stock price and dividend yield remain stable. And my total investments will be worth £16,289 as opposed to just £10k.

The post 3 golden steps to building long-term wealth with UK shares appeared first on The Motley Fool UK.

European Assets Trust

It may seem odd to be considering the income potential of a share that saw a big dividend cut recently. But that is what I am doing.

The share in question is European Assets Trust (LSE: EAT). It invests in small and medium-sized companies on the Continent.

At the moment the yield on offer is 6.3%. I already find that sufficiently attractive as a potential income stream. But the cut is what interests me most. It came about because the trust sets its annual payout based on the net asset values of its holdings at the end of the year.

So if European shares rally, this year or later, I expect the dividend to be increased again. If the dividend reaches last year’s level again, the yield at today’s share price would be 9.5%.

Europe is struggling economically, though. That could lead to another dividend cut and it may also mean that the European Assets Trust share price falls from here.

But I remain bullish on the medium- to long-term economic outlook in countries like Germany and think the trust is well-positioned to benefit from it.

British American Tobacco

I already own a stake in British American Tobacco (LSE: BATS). But if the share price keeps sliding as it has done recently, I would be happy to expand my holding in the coming month. Even at the current price I see these as shares to buy for my portfolio if I have spare cash.

Over the past year, the shares have fallen 12%. They are down 34% over a five-year period. But British American Tobacco has been growing, despite falling demand for cigarettes. Over the past three years, revenues grew 7%, earnings per share were up 17% and the dividend per share increased 7%.

Net debt is high, though, at nearly £40bn. That could weigh on profits. Declining cigarette sales are a key risk — although the company has expanded its non-cigarette sales quickly, this remains loss-making. Breakeven is expected next year but I doubt profit margins will match those of cigarettes.

The recent share price fall means British American Tobacco now yields 7.9%. The FTSE 100 stalwart has raised its dividend annually for over two decades. It has a progressive dividend policy, although in practice that is never guaranteed.

I regularly receive passive income from British American Tobacco — and would gladly receive more! That is why the company is on my list of shares to buy in coming weeks.

The post 2 dividend shares to buy in April for 6%+ yields appeared first on The Motley Fool UK.

All pay dividends on a quarterly basis, although no dividend is ever guaranteed.

5%+ yield: Assura

Healthcare landlord Assura (LSE: AGR) has the makings of a long-term cash generation machine. It focuses on building, buying and leasing properties for medical care providers such as doctors’ surgeries and ambulance depots.

Not only do I expect demand for such spaces to be resilient, I like the low risk profile of the tenant base. No tenant is ever guaranteed to pay their rent, but taxpayer-funded healthcare providers seem less likely to default than commercial renters.

That helps the company fund a generous quarterly dividend. It has raised its payout annually in the past few years. The shares now yield 5.9%.

But if Assura really is so attractive, why have its shares fallen 18% over the past year?

I think investors are nervous that rising interest rates could hurt profitability. Assura ended last year with net debt of £1.1bn. I see the price fall as an attractive buying opportunity for my portfolio.

6% yield:  European Assets Trust

Many UK shares have had a great few months since their October lows. Could economic recovery also improve the outlook for their mainland Europe peers?

I think it may. European Assets Trust (LSE: EAT) offers me exposure to small and medium-sized companies on the Continent. Not only does that mean I can get diversified exposure to a range of European markets, I think it could help me benefit from the growth prospects of medium-sized companies when the economic engine starts humming once more.

Despite a dividend cut last month, the investment trust still has a prospective yield of 6%.

Why would I invest in a company that has just slashed its dividend? The trust’s policy is to target paying out 6% of its net asset value each year as dividends in the following 12 months. So although falling stock markets could lead to more cuts in the payout, the reverse is also true. Strong performance this year by companies in which it invests could lead to a bigger dividend in 2024.

7%+ yield: British American Tobacco

With a thumping 7.2% dividend yield, British American Tobacco (LSE: BATS) already pays me passive income thanks to my existing shareholding – but I would welcome more.

In fact, I ought to receive more soon, without lifting a finger. Yesterday the company unveiled a 6% increase in its annual dividend per share.

As the results showed, revenue is increasing, cash flows remain gargantuan and the company’s non-cigarette business is growing sales very fast. However, the business remains heavily reliant on cigarettes. The non-cigarette business is still loss-making and may never achieve the sort of margins produced by cigarettes, which are cheap to manufacture. The long-term decline in cigarette smoking therefore poses a risk to profits — and the dividend.

So far, I think the firm has managed this longstanding risk well. Yesterday’s rise was just the latest in more than two decades of annual dividend increases.

The post 5% yield! 6% yield! 7% yield! 3 UK shares I’d buy today appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Aviva 

What it does: Aviva is the UK’s leading insurance, wealth and retirement business. 

By G A Chester. Aviva (LSE: AV) is my top pick for income right now. A recent dividend cut from sector peer Direct Line Insurance hasn’t dampened my enthusiasm. 

Aviva’s dividend isn’t guaranteed, but its diversified business across multiple insurance lines, wealth and retirement is a major strength. And a third-quarter trading update, issued in November, gives me confidence in the prospects, financial targets and outlook for the group. 

Management reported “continued strong trading momentum” and a capital position “well above the top-end of our target range”. It said its dividend guidance remains unchanged. As does its intention to commence additional returns of capital to shareholders, with its full-year results scheduled for 9 March. 

The dividend guidance is 31p per share for the year, with an increase to 32.5p for 2023. At a share price of 440p as I’m writing, the yield is 7%, rising to 7.4%. And there’s the start of those anticipated additional capital returns on top, too… 

G A Chester does not own shares in Aviva or Direct Line Insurance.

DS Smith

What it does: DS Smith is one of Europe’s largest cardboard manufacturers, playing a critical role in the ecommerce supply chain.

By Zaven Boyrazian. Ecommerce isn’t having the best of times lately. With consumer spending falling off a cliff courtesy of shaky economic conditions, the volume of online shopping has declined. And that’s arguably a big reason why the DS Smith (LSE:SMDS) share price was hit so hard in 2022.

As a reminder, the dividend stock is one of the largest cardboard manufacturers in Europe. It’s hardly the most exciting enterprise, but packaging materials play a crucial role in ecommerce.

Unsurprisingly, the company reported a 3% decrease in volume in its latest results. And yet, on the back of several price hikes, revenue and earnings are actually up – and not by a small amount. Pre-tax profits surged by 80%, leading to a 25% boost in shareholder dividends.

Pairing that with a depressed valuation, the dividend yield now stands at 4.7%. While there remains the risk of a sharper drop-off in volumes if economic conditions worsen, the long-term income potential makes it a risk worth taking, in my opinion.

Zaven Boyrazian does not own shares in DS Smith.

European Assets Trust

What it does: European Assets Trust is an investment trust focussed on small and medium-sized companies in Continental Europe

By Christopher Ruane. As an income investor, a dividend cut rarely sounds like welcome news. But that is what was announced in the first week of the year by European Assets Trust (LSE: EAT). The annual dividend fell 34% compared to last year.

However, I still see the trust as a potentially attractive income generator for my portfolio and would buy it if I had spare cash to invest.

The cut still leaves it with a juicy prospective dividend yield over 6%. It is consistent with the trust’s payout policy based on its net asset value, meaning the dividend could bounce back in future if the trust’s shareholdings perform well.

The opposite is also true, though: it could fall further. Inflation could hurt profits at some of the trust’s investments. But I like its exposure to developed economies. I also think its focus on smaller companies rather than mature giants offers growth potential.

Christopher Ruane does not own shares in European Assets Trust.

Glencore

What it does: Glencore is a commodity giant that trades and mines an array of metals and other resources.

By John Choong. Like many commodity stocks, Glencore (LSE: GLEN) shares had a volatile time in the first half of last year due to the instability surrounding China’s manufacturing activity. Nonetheless, it managed to stage a rally in the second half, and finished 2022 on a high with a gain of 45%.

Although the consensus for investors is to buy low and sell high, I’m opting to buy high with Glencore. Its shares may be trading at a five-year high, but its relatively cheap multiples and bright prospects in both the medium and long term make this a great investment for me.

Its dividend yield isn’t astounding by any means at just over 3%, but with coal prices expected to hold up strongly this year while other metals strengthen, I’ve no doubt those profits will translate into dividends and a growing share price. After all, both JP Morgan and Citi rate the dividend stock as one of their top picks for 2023.

John Choong has positions in Glencore.

IG Group

What it does: IG Group is a FTSE 250-listed global leader in online trading and investments.

By Paul Summers: Having once held the dividend stock, I’m beginning to think about rebuilding a position in IG Group (LSE: IGG) for the income it consistently throws off. The stock is forecast to yield 5.8% as I type. That’s almost double the 3% yield of the FTSE 250 as a whole.

Naturally, no dividend stream is ever truly safe. The ability of a company to keep returning cash depends on whether it can continue generating profit. 

I don’t see this as being a problem for IG, particularly in the current economic environment. In contrast to most businesses, it benefits from market volatility as more traders want a slice of the action. Accordingly, dividends are forecast to be comfortably covered twice by profit in the current financial year. 

This, when combined with high operating margins and a robust balance sheet, make a price tag of nine times earnings look very reasonable.

Paul Summers has no position in IG Group

Legal & General Group

What it does: Legal & General is a financial services company that specialises in insurance, investments, and retirement solutions.

By Edward Sheldon, CFA. It’s hard to ignore Legal & General’s (LSE:LGEN) dividend yield right now. For 2022, analysts expect the company to pay out 19.4p per share in dividends. That equates to a yield of around 7.5% at today’s share price.

It’s not just the headline yield that impresses me here, though. Another thing that stands out is the company’s dividend track record. Over the last decade, Legal & General has been a very reliable dividend payer. And it has increased its payout significantly over this period.

As for the valuation, this is very low at the moment. As I write this, the dividend stock’s price-to-earnings (P/E) ratio is less than eight. Given this low valuation, I think there’s potential for share price gains here too.

It’s worth noting that Legal & General shares can be volatile at times. During periods of market turbulence, they tend to fall more than the overall market. I think the key is to ignore the share price volatility and focus on the big dividends being paid out.

Edward Sheldon has no position in Legal & General Group.

Rightmove

What it does: Rightmove is a property platform. With 692,000 properties and 18,969 customers, it’s the largest in the UK.

By Stephen Wright. With a dividend yield of around 1.5%, Rightmove (LSE:RMV) is hardly an obvious choice of income stock. But there are a few things worth noting about the company’s shareholder returns.

The first is that Rightmove’s dividend has been growing significantly. Over the last decade, the dividend per share has grown by an average of 10% per year.

Another is that Rightmove returns a lot of cash to its shareholders via share buybacks. These allow shareholders to sell part of their investment without reducing their stake in the overall company.

In total –  through a combination of dividends and buybacks – Rightmove returns around £239m to shareholders. At today’s prices, that’s a yield of just over 5%.

That’s why Rightmove is my best British income stock to buy for February. A rising dividend and a significant buyback programme means there’s a lot going on here from an income perspective.

Stephen Wright owns shares in Rightmove.

Rio Tinto 

What it does: Rio Tinto is a global metals and mining company. It provides the world with materials such as iron ore, copper and aluminium.  

By Harshil Patel. With a market capitalisation of just over £100bn, Rio Tinto (LSE:RIO) is one of the largest companies listed on the FTSE 100.  

I’d describe it as a high-quality business. It offers a long-established track record and has a history of providing above-average shareholder returns.  

In addition to a double-digit return on capital employed and profit margin, Rio offers a forecasted dividend yield of 6%.  

And despite its shares trading near an all-time high, the shares still look cheap to me. Its P/E ratio of 10 appears to be towards the lower half of its historical range.  

Looking forward, the reopening of China’s economy could provide a boost to infrastructure spending. That should result in earnings growth and potentially dividend growth, too.  

Bear in mind that the mining sector is cyclical, though. A downturn in the global economy can often have the opposite effect.  

Overall, though, Rio strikes me as a decent dividend stock with added potential for growth.  

Harshil Patel does not own shares in Rio Tinto. 

TP ICAP

What it does: TP ICAP operates across a range of financial markets, providing brokerage, data solutions, and liquidity to its trading clients.

By Roland Head. FTSE 250 financial services group TP ICAP (LSE: TCAP) boasts a 2023 forecast dividend yield of 7%. The firm has returned to growth after a difficult period and is expected to report rising profits for both 2022 and 2023.

By matching up buyers and sellers for deals that can’t be done on electronic exchanges, TP ICAP’s brokers earn tasty commissions.

Demand for these so-called interdealer broker services isn’t as high as it used to be, but the company has diversified by expanding into commodities and developing new data services for clients.

Rising interest rates and resulting volatility have generally been good for the firm. However, one concern I have is that it’s difficult for outside investors to predict how market conditions will affect performance, especially in the core brokerage business.

Even so, TP ICAP shares look affordable to me. Trading on seven times forecast earnings, I see the dividend stock as a good income buy.

Roland Head does not own shares in TP ICAP.

The post Top British dividend stocks to buy for February appeared first on The Motley Fool UK.

It has just slashed its dividend. So should I steer clear — or invest?

That dividend cut

In principle, the trust managers can set the dividend using their own discretion. In practice, however, they have set out a dividend policy to guide their actions. The annual dividend is set at a level equivalent to 6% of the net asset value as of 31 December each year.

In 2021, the investment trust ended the year with a net asset value per share of £1.46. So 6% of that would be 8.76p. That explains why the dividend last year was 8.8p per share, paid in four equal instalments.

The net asset value fell sharply last year. The trust has announced that its proposed total dividend this year will therefore be 5.8p per share, again paid in four equal instalments. That is a fall of 34% compared to last year’s dividend.

What a falling yield means

For many companies, I would take a falling dividend yield as a sign of a worsening business outlook.

But for an investment trust, I see things a bit differently. The net asset value of European Assets Trust fell last year. But that does not necessarily mean that the underlying businesses are less attractive than before. It means that the value of the trust’s share portfolio has gone down, which is a different thing.

If the net asset value rises this year, which is a possibility, I expect the dividend to increase next year in line with the trust’s policy. Meanwhile, the trust’s share price has fallen by 29% over the past year.

So while the dividend has fallen a bit faster, the share price fall means the yield I could get through buying today is not much smaller than it would have been if I bought a year ago. The current yield is 6.1%, which I regard as attractive.

Risks and reward

European businesses face ongoing risks, such as high energy costs hurting profits. That could mean that the shares owned by the investment trust have another tough year, leading to a further dividend cut next year.

But I still see potential value for my portfolio here. This investment trust offers me exposure to dozens of European firms, which may benefit when the economy starts to strengthen again. I can hopefully get a 6% dividend yield. That may rise again in future, which in turn could help support a higher share price. If I had spare cash to invest today, I would buy European Assets Trust shares for my portfolio.

The post This investment trust dividend yield just crashed. Time to buy? appeared first on The Motley Fool UK.

Double-digit yield

The share in question is the European Assets Trust (LSE: EAT).

At the current share price, its annual dividend of 8.8p per share equates to a 10.6% yield. Looking at recent years, the dividend has been increasing annually since 2018, even throughout the pandemic.

But past performance is not necessarily a guide to what comes next. No dividend is ever guaranteed — and this one may not last at its current level.

Dividend policy

That is partly because the investment trust has a dividend policy that targets paying out 6% of its net asset value at the end of the prior year. That means that if the European Assets Trust share price continues its weak performance for the rest of 2022, the dividend will likely fall sharply next year.

Its net asset value at the end of August was approximately 96.2p per share. Paying out 6% of that as a dividend would mean each share earning around 5.8p in dividends across 2023. That would be a fall of roughly 34% from the current payout. If the net asset value falls further, the cut could be worse. That said, the opposite is true. If European shares stage a recovery before the end of the year, the dividend could increase again.

However, a policy is only that: ultimately it is up to the discretion of the trust managers to decide what dividend to pay. I expect them to stick broadly to their stated policy, but they may always decide to continue the payout at its previous level if they choose. to. So the current dividend may last, although in the long term to be supportable the trust will need to earn enough from the dividends or sale proceeds it receives from its shareholdings.

Investing in Europe

However, I think the investment trust faces other challenges right now. Primary among those is a recession in some European countries. That could hurt both revenues and profits at some companies in which it has invested.

A weaker pound could also be bad news, although I see it as a double-edged sword. On one hand, it makes it more expensive for the trust to buy euro-denominated shares than before. On the other hand, the value of shares the trust already holds and dividends it receives in euros will now be higher in sterling than was the case before.

Why I’d buy this investment trust

Although there are challenges, I would buy European Assets Trust for my portfolio today if I had spare money to invest.

The yield is attractive and may still be so even after a cut. I am positive about the medium- to long-term prospects for European economies in general and think the trust would give me diversified exposure to them. As a long-term investor, I think the current share price offers me an attractive entry point.

The post Will this investment trust maintain its 10%+ dividend? appeared first on The Motley Fool UK.

European Assets Trust

The name in question is the European Assets Trust (LSE: EAT). The trust focusses on medium-sized companies in Continental Europe. With soaring energy prices, high inflation, and tightening consumer spending, the sales outlook for some such businesses is starting to look bleak.

That helps explain why the investment trust’s share price has fallen 40% over the past year.

But are things really that bad? Are the companies in which the trust owns stakes really worth only three-fifths of their value at this point last year? I think that the fundamental long-term business prospects of many such firms remains good. For example, consider a couple of the trust’s 10 largest holdings: Danish bank Ringkjoebing Landbobank and Dutch foodservice firm Sligro. In the long term, I expect customer demand in both sectors to remain high.

But the trust’s shares have fallen a long way. As of 29 July they were trading at a discount of 6.8% to the net asset value of the trust’s portfolio.

Juicy dividend

Not only do I feel the current share price does not reflect the long-term potential of the trust’s portfolio, I am also attracted by the dividend.

European Assets Trust pays out quarterly. At the moment, the annual dividend yield is 9.2%, which I regard as highly attractive.

Is that yield sustainable? One question is whether the firms in which the trust invests will continue to pay dividends at their current level. That is never guaranteed and it affects the trust’s own ability to pay out funds to shareholders.

But even if it has enough money, the trust may still cut its dividend. The stated aim is to set the dividend at 6% of the net asset value at the end of the prior year. We have seen a tumbling net asset value so far this year. If it does not recover by the end of the year, I think there is a fair chance the trust’s dividend will be reduced next year.

Still, a yield of over 9% means that even after a dividend cut, the income potential of the shares could be substantial.

Should I buy this investment trust?

I think this investment trust offers me exposure to the sorts of European companies I expect to perform well in the long term, although they face headwinds in the short term like inflation hurting customer demand.

The dividend may not continue at its current level. But I think the income prospects for the European Assets Trust continue to look promising. That is thanks to its ownership of a diversified range of shares in profitable companies. I would consider opening a position in this investment trust in my portfolio today.

The post Should I buy this cheap investment trust for its 9% dividend yield? appeared first on The Motley Fool UK.