The Victorian trusts to buy today for income

Dips in share prices – whether they are triggered by weak China growth figures or the looming Brexit poll – are creating highly attractive opportunities for investors who want income. Falls in share prices mean it is now possible to lock into investment trusts – special companies set up purely to invest in other shares – that pay dividend returns of up to 6pc. Many such trusts are more than a century old and have excellent dividend track records.

This is a far higher return than investors have come to expect from other, more popular types of fund such as unit trusts or “Oeics”.

It is also higher than the dividend yield of the stock market as a whole.

Investors have had a difficult year to date, with the Brexit referendum being only one contributor to the unrest. A potential further rise in American interest rates, which could come within weeks, stands to lower the value of many assets, while a generally gloomy view of global economic growth persists.

As share prices have fallen over the past year, the cash income from company dividends looks more attractive – especially when it is demonstrably secure. Investors can get the same cash income for a lower price and the percentage yield on stocks increases. So is now a good time to buy dividend-paying stocks, and the funds that hold them?

If only it were that simple. “Equity income” funds have had to face dividend cuts among many of the traditionally high-paying companies over the past year, including supermarkets ( Tesco and Sainsbury’s) and banks (Barclays and HSBC).

Additionally, the share prices of companies that pay a good income have been driven higher over the past few years because the steady return they provide is seen as so desirable. All

INCOME PICKS WITH PEDIGREE

Investment trust

City of London Dunedin Income Growth Merchants Murray Income Schroder Income Growth Share price Dividendin now past12mths 380p 16p 215p 11.4p 404p 24p 650p 32p 247p 10.3p this poses risks for income-seeking investors.

Investment trust structures, however, help savers remove some of this risk.

Investment trusts can choose from the same high-yielding stocks as their more common unit trust cousins, but have extra flexibility to hold back some of the dividends they receive in good years to bolster their own income payments in leaner ones.

Skilful fund managers can use this flexibility to build long, unbroken records of rising dividends, including in periods when underlying dividends are weak. The investment trusts we feature in our table can all, with one exception, boast multidecade records of rising dividends.

The recent financial crisis caused company profits to collapse and some equity income investment trusts suffered drops in income of as much as a third.

None the less, 11 of the 14 equity income trusts established before 2008 were able to pay a growing dividend each year, according to recent research by Canaccord Genuity, the broker.

Only one trust cut its dividend, while one held it unchanged for a year and another for two years before rises resumed.

Share price falls are making it possible to lock into higher income. Ed Monk picks the best

The City’s Royal Exchange, pictured in the early 20th century. Many investment trusts are even older