Replace your salary with assets that pay a monthly income
As savers spring-clean portfolios for 2018 many seek holdings that, like a salary, pay income each month. By Richard Dyson
If an investor’s primary aim is to receive a high income, the next requirements are that the income is regular and reliable. The start of a new year brings the usual flurry of requests for details of the best available investments that pay income monthly. It’s a common request, yet the information isn’t readily available in best-buy tables either in print or online.
So Telegraph Money has done the work for you in this up-todate guide, which covers the best monthly-paying investments
– from zero-risk cash accounts to funds that invest in company shares and bonds.
Monthly-paying cash accounts, including National Savings
The price you pay for monthly income is a lower rate than you might obtain from standard accounts. Providers say that’s because frequent payments are more costly to process. The usual variable-rate and fixed-rate options are available.
The best variable-rate savings accounts paying monthly income require notice of three to four months. Milestone Savings pays 1.51pc per year (three months’ notice) and Paragon Bank 1.44pc (four months’ notice). For no-notice monthly payers, the best providers are RCI Bank and Post Office Money. Both offer accounts paying 1.29pc.
Most accounts require minimum deposits, typically £1,000.
Fixed-term accounts with monthly distributions are more attractive. An 18-month account from Charter Savings Bank pays 1.85pc a year on £10,000, for example.
The best one-year bonds pay 1.75pc (from Charter Savings again) and 1.7pc (Paragon Bank).
For a reasonable return, monthly payments and absolute security the best bet is National Savings & Investments’ Guaranteed Income Bonds Issue 56. The annual rate is 2.15pc, unusually competitive for NS&I. At the moment only one institution offers similar terms and a better rate: that’s Charter Savings, which pays 2.19pc. NS&I has the edge in terms of security: deposits there are backed by HM Treasury.
Higher monthly income from shares and bonds
You can push your income up to 4pc or more per year and still receive the income monthly, provided that you’re prepared to expose your capital to some risk.
A number of unit trusts and investment trusts make monthly distributions, and several make for highly attractive long-term holdings, irrespective of the frequency of their dividends.
Investment trusts differ from unit trusts (or “open-ended” funds) in that they are set up as companies with shares listed on the stock market. This gives several advantages: one is that potential investors can swiftly look up recent dividend payouts expressed in pounds and pence and then compare them with the current share price. That gives a reliable idea of likely income, although future dividends can of course be cut.
One monthly-paying investment trust tipped by the Telegraph’s
Questor column is the F&C Commercial Property Trust.
The company owns £1.4bn of shops, warehousing, offices and other properties around Britain, on which it collects rents. It pays a steady 0.5p per month dividend per share, and with the shares trading on Friday at 137p, that gives an annual yield of 4.3pc.
F&C Commercial Property is one of half a dozen investment trusts to pay monthly, with the others being generally smaller and exposed to more niche assets including specialist property or bonds. So one answer, for those who wish to stick to investment trusts, is to hold several betterknown trusts that pay quarterly dividends and select those holdings on the basis that their dividend payments fall in different months (see page 10).
Your alternative is to choose unit trusts. These are run by fund groups and typically invest your money in bonds or shares. Unit trusts are governed by different rules from those that apply to investment trusts. One consequence is that the pounds-and-pence income paid to unit holders can be more
variable than the income paid by investment trusts. Some investors will find this variability inconvenient, but it has another downside, which is that it can distort the quoted yield of the fund. This is the yardstick figure investors are expected to use to gauge future payouts.
Unit trusts that pay monthly and have solid track records include Premier Monthly Income, Invesco Perpetual Monthly Income, Schroder High Yield Opportunities and Jupiter Monthly Income.
Get monthly income by marrying several investments that pay quarterly dividends
Telegraph Money is a fan of many investment trusts and for monthly income-seekers we suggest that one option is to buy shares in several whose quarterly dividend payments fall in different months. For instance, City of London investment trust, which has an unbroken record of dividend increases that stretches back more than half a century, currently yields almost 4pc and pays out in February, May, August and November.
Its £1.6bn portfolio is invested in an array of large, multinational companies listed in London, such as HSBC, British American Tobacco and Shell.
A rival trust, which also invests in shares of companies that derive earnings from all over the world, is Invesco Income Growth. It also yields almost 4pc – but makes its dividend distributions in the months of March, July, October and December.
A third trust – for instance JP Morgan Global Emerging Markets Income – could be held alongside the other two. Its payments in January, April, July and October would then cover ten months of the year.