How to generate an annual yield of over 10% from investment trusts

Laura Suter

4 September 2019

•   The ultimate income investments trusts, which yield up to 11% on a 10-year basis
•   20 trusts are yielding 7% or more, while four trusts are yielding 10% or more
•   Average total return over 10 years is 210.5% -- highest is 541%

‘Dividend Hero’ investment trusts have generated dividend increases every year for 20 consecutive years or more, while the ‘Next Generation Dividend Hero’ trusts have done so every year for 10 consecutive years or more.
However, those investors who bought years ago could be getting far higher yields on their money than the headline figure today. For that you have to look at the current yield compared to the price when the investor purchased the investment trust. In this analysis we have compared the current yield to the share price of each trust 10 years ago.

Highlights:

Henderson Smaller Companies comes top of the pack for its current yield, at 11%, which equates to just over £1,100 for every £10,000 invested a decade ago. Over the past decade investors who had automatically reinvested their dividends would have seen a total return of 432%.
A total of 20 trusts are yielding 7% or more, based on today’s income and buying the trust 10 years ago, while four trusts are yielding 10% or more. The top two are both focused on investing in small UK businesses with BlackRock Smaller Companies a close second to Henderson Smaller Companies. They both have 16 years of increasing their dividends. The Henderson trust has turned a £10,000 investment into £53,214 over the past decade, while the BlackRock trust has a 10.3% yield and the same investor would be sitting on almost £62,000.
British & American trust makes the top income trusts, yielding 10.1% but is one of the few to actually see a share price fall during the 10 years, with it down more than 58%, which serves to boost the 10-year yield figure.
Buy-and-hold investors who don’t need the income today can reinvest their dividends and benefit from the power of compounding. Five trusts have handed investors a total return of 400% or more over the past decade, four of which invest in the UK Smaller Companies sector.
BlackRock Throgmorton is one of those, turning a £10,000 investment in 2009 into £64,091 today. It is yielding 8.6%, based on buying 10 years ago, a significant uplift on the current yield of 1.7%.
Global trust Scottish Mortgage also makes the top five for total return, with a 523% return over that period, turning a £10,000 investment 10 years ago into £62,341 today. Despite making the Dividend Hero list with 36 years of increasing dividends, the trust is not income focused nor a high yielder – with a 10-year yield of 3.2% and yield of less than 1% today (in part due to its soaring rise in share price).
A portfolio evenly split between the top 10 investment trusts by total return, over the past 10 years would have grown £100,000 into more than £475,000 and would be generating almost £7,000 income currently.
Meanwhile, a portfolio evenly split between the top 10 trusts based on current yield would have turned £100,000 into just over £365,000 but would be paying out current income of almost £10,000.

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“The reality is that most investors buy and hold over a long period, and these figures will be a welcome boost to those who bought 10 years ago and are sitting on a hefty yield today. These trusts are not just high yielders, they have proved that they can consistently deliver increases in their payouts – in some cases for five decades or more.
“Any investor would be pleased with the 11% yield from Henderson Smaller Companies, based on buying 10 years ago, meaning it is paying out more than £1,100 income a year based on a £10,000 investment in 2009.
“What’s more four trusts have managed to deliver the Holy Trinity of a sizeable yield and a top total return. Henderson Smaller Companies, BlackRock Smaller Companies, Schroder Oriental Income and BlackRock Throgmorton all come top for the current yield on buying a decade ago and total return.
“Investment trusts are well suited to giving investors a steady income, as they can withhold up to 15% of the income they receive each year to be used to boost dividends in future years when payouts may be lower. The fact that fund managers aren’t forced to sell when they see outflows means the trusts can be longer term in nature and managers can ride out market volatility, without being forced to sell by investor redemptions.”

Top 10 trusts by total return:

Company	AIC sector	Years of dividend increases	2018 yield on 2009 price	2018 yield on 2019 price	Total return (%age)	Growth of £10,000 pot since 2009	Income today on £10,000 invested in 2009
BlackRock Throgmorton	UK Smaller Cos	15	8.6%	1.7%	540.9%	£64,091	£862
Scottish Mortgage	Global	37	3.2%	0.6%	523.4%	£62,341	£322
BlackRock Smaller Cos	UK Smaller Cos	16	10.3%	2.0%	519.9%	£61,986	£1,030
Henderson Smaller Cos	UK Smaller Cos	16	11.0%	2.6%	432.1%	£53,214	£1,101
Standard Life UK Smaller Cos	UK Smaller Cos	12	6.3%	1.5%	402.3%	£50,229	£633
BMO Global Smaller Cos	Global	49	3.8%	1.1%	293.6%	£39,357	£380
Scottish American	Global Equity Inc	39	6.9%	2.8%	267.1%	£36,705	£689
Schroder Oriental Income	Asia Pacific Ex Japan	12	9.2%	3.8%	259.1%	£35,911	£915
Bankers	Global	52	5.6%	2.1%	257.7%	£35,773	£563
F&C Investment Trust	Global	48	4.4%	1.5%	254.0%	£35,398	£441
Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

Top 10 trusts by current income:

Company	AIC sector	Years of dividend increases	2018 yield on 2009 price	2018 yield on 2019 price	Total return (%age)	Growth of £10,000 pot since 2009	Income today on £10,000 invested in 2009
Henderson Smaller Cos	UK Smaller Cos	16	11.0%	3%	432.1%	£53,214	£1,101
BlackRock Smaller Cos	UK Smaller Cos	16	10.3%	2%	519.9%	£61,986	£1,030
British & American	UK Equity Income	24	10.1%	24%	17.0%	£11,695	£1,012
Schroder Oriental Income	Asia Pacific Ex Japan	12	9.2%	4%	259.1%	£35,911	£915
BlackRock Throgmorton	UK Smaller Cos	15	8.6%	2%	540.9%	£64,091	£862
Scottish Investment Trust	Global	35	8.5%	4%	158.1%	£25,813	£852
Athelney	UK Smaller Cos	16	8.2%	4%	209.0%	£30,897	£824
Henderson Far East Income	Asia Pacific Ex Japan	11	8.0%	6%	132.8%	£23,283	£801
Edinburgh Investment	UK Equity Income	14	8.0%	5%	147.4%	£24,743	£798
City of London	UK Equity Income	53	8.0%	4%	179.7%	£27,970	£798
Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

Full list of dividend heroes:

Company	AIC sector	Years of divi increases	2018 yield on 2009 price	2018 yield on 2019 price	Total return (%age)	Growth of £10,000 pot since 2009	Income today on £10,000 invested in 2009
Henderson Smaller Companies	UK Smaller Cos	16	11.0%	3%	432.1%	£53,214	£1,101
BlackRock Smaller Companies	UK Smaller Cos	16	10.3%	2%	519.9%	£61,986	£1,030
British & American	UK Equity Income	24	10.1%	24%	17.0%	£11,695	£1,012
Schroder Oriental Income	Asia Pacific Ex Japan	12	9.2%	4%	259.1%	£35,911	£915
BlackRock Throgmorton	UK Smaller Cos	15	8.6%	2%	540.9%	£64,091	£862
Scottish Investment Trust	Global	35	8.5%	4%	158.1%	£25,813	£852
Athelney	UK Smaller Cos	16	8.2%	4%	209.0%	£30,897	£824
Henderson Far East Income	Asia Pacific Ex Japan	11	8.0%	6%	132.8%	£23,283	£801
Edinburgh Investment	UK Equity Income	14	8.0%	5%	147.4%	£24,743	£798
City of London	UK Equity Income	53	8.0%	4%	179.7%	£27,970	£798
Value and Income	UK Equity Income	32	7.9%	5%	156.3%	£25,628	£790
Aberdeen Standard Equity Inc	UK Equity Income	18	7.9%	5%	116.7%	£21,672	£789
Merchants	UK Equity Income	37	7.8%	5%	146.6%	£24,660	£781
HICL Infrastructure	Specialist: Infrastructure	12	7.5%	5%	168.8%	£26,879	£752
Aberdeen Asian Income Fund	Asia Pacific Ex Japan	10	7.5%	4%	168.8%	£26,877	£750
Perpetual Income & Growth	UK Equity Income	20	7.4%	5%	113.4%	£21,339	£739
Murray International	Global Equity Income	14	7.3%	4%	152.5%	£25,254	£732
Schroder Income Growth	UK Equity Income	23	7.1%	4%	155.0%	£25,499	£714
JPMorgan Claverhouse	UK Equity Income	46	7.0%	4%	156.9%	£25,692	£697
Scottish American	Global Equity Inc	39	6.9%	3%	267.1%	£36,705	£689
Invesco Income Growth	UK Equity Income	22	6.8%	4%	144.2%	£24,424	£682
International Public Partnerships	Specialist: Infrastructure	11	6.5%	4%	149.8%	£24,977	£654
Henderson EuroTrust	Europe	15	6.5%	3%	210.8%	£31,079	£650
Murray Income	UK Equity Income	45	6.4%	4%	153.2%	£25,318	£643
Standard Life UK Smaller Cos	UK Smaller Cos	12	6.3%	1%	402.3%	£50,229	£633
Temple Bar	UK Equity Income	35	6.1%	4%	136.5%	£23,649	£607
Witan	Global	44	6.0%	7%	237.7%	£33,767	£597
BMO Capital & Income	UK Equity Income	25	5.8%	4%	139.0%	£23,900	£585
Bankers	Global	52	5.6%	2%	257.7%	£35,773	£563
Henderson European Focus	Europe	12	5.5%	3%	182.2%	£28,220	£552
TR European Growth	European Smaller Cos	16	5.3%	2%	173.7%	£27,372	£532
Brunner	Global	47	5.3%	2%	215.6%	£31,556	£528
Alliance Trust	Global	52	4.5%	2%	234.4%	£33,435	£447
F&C Investment Trust	Global	48	4.4%	2%	254.0%	£35,398	£441
BMO Global Smaller Companies	Global	49	3.8%	1%	293.6%	£39,357	£380
BlackRock Greater Europe	Europe	13	3.7%	1%	211.0%	£31,101	£374
Witan Pacific	Asia Pacific Inc Japan	14	3.7%	2%	153.2%	£25,321	£371
Caledonia	Flexible Investment	52	3.5%	2%	141.4%	£24,140	£353
Scottish Mortgage	Global	37	3.2%	1%	523.4%	£62,341	£322
Artemis Alpha Trust	UK All Companies	15	2.4%	2%	60.5%	£16,053	£240
Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

Laura Suter

Director of Personal Finance

Laura Suter is director of personal finance at AJ Bell. She is a spokesperson for the company on a range of personal finance topics and is quoted in print media and regularly appears on TV and radio. She is also a founding ambassador of AJ Bell Money Matters, a campaign to get more women investing and engaging with their finances; she hosts two podcasts; and regularly speaks at events and webinars. Prior to joining AJ Bell she was a multi-award winning financial journalist, specialising in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications in London and New York and has a degree in Journalism Studies from University of Sheffield.