Consumers are continuing to spend as usual following Britain’s vote to leave the European Union, services data from the Office for National Statistics revealed today.
While the full picture of Britain post-Brexit has not emerged, a sturdier outlook would impact the Bank of England’s decision whether or not to ease policy further before the end of this year. Alexis Gray, European economist for Vanguard last week told Morningstar that a policy cut seems more likely than not in November.
Regardless of the Bank’s decision, low-yielding bonds are now the norm in the UK; investors have been left scratching their heads as to where can find income without taking on unnecessary risk.
High yielding investment trusts might be an attractive alternative for income seekers, and some are trading at a discount. Using Morningstar Direct we have identified three of the top rated investment trusts with the highest yields. All of them are trading at a discount to net asset value with a dividend yield above 4%, which might signal a buying opportunity for investors.
3 Bronze Rated Trusts Yielding More than 4%
BlackRock Commodities Income (BRCI) offers the highest yield at 6.6% among all investment trusts highly rated by Morningstar analysts. It is trading at 1.4% discount and is Bronze Rated by Morningstar analysts.
The trust has gained 38.4% year to the end of August this year. However, there are questions regarding the sustainability of the dividends in this sector. It recorded a 5.3% annualised loss over the past three years and an annualised loss of 2.3% over the past five years.
Morningstar analysts said the trust sets a dividend target each year, and so far the fund has delivered a progressive yield since its launch. It has also managed to accrue enough reserves to cover the dividend, at its current level, for around six months.
Analysts hold the fund manager Olivia Markham in high regard. They like the extra layer of robustness that Markham added as she introduced a quarterly income flow forecast that brings greater clarity of future income and helps both her and the board in managing the dividend payments to shareholders.
Another Bronze Rated close-ended fund is Dunedin Income Growth (DIG). The trust is trading at 10.7% discount with a 4.7% dividend yield. It gains 13.6% so far this year and it has an 8.6% five year annualised return.
Growth of income is a key objective here and the trust mainly invested in companies listed or quoted in the UK, David Holder, a fund analyst at Morningstar said.
“The income the fund delivers is indeed attractive, and at a time when many funds are shying away from providing a high level of income, it is a differentiator,” Holder added.
“The board has presided over a rising level of distributions to investors for 32 of the past 36 years, and there are revenue reserves approaching one year's worth of distributions,” he said, adding that this trust provides a relatively core option for investors seeking a high and regular level of income.
The Bronze Rated Murray Income trust (MUT) is trading at 8.8% discount offering a 4.4% dividend yield. It gains 11% year to date and it has a five-year annualised return of 8.8% and a 5.7% 10-year annualised return.
The trust has a steady income flow, aiming to provide investors a high and growing dividend and capital growth. The fund has fulfilled their goals for more than two decades, Morningstar analysts said. It has increased the dividend every year since 1973. The trust has kept back income in the revenue reserve account in previous years, such that at the current level of dividend, it can cover payments for nearly 15 months.
Although returns under the fund manager Charles Luke are not exciting, the trust does its job well enough and investors can rely on regular income from their investments, analysts added. The ongoing charges are kept at a competitive level among its category peers as well.
