Ian Cowie: 11 income investment trusts ticking all the boxes

Investment trusts’ ability to sustain a high and rising income with capital growth are among their most important characteristics for investors - like me - whose priority is to pay for an enjoyable life without work.

We all know about the “dividend heroes” or trusts that have increased shareholders’ income for at least 20 years but, sad to say, some offer only meagre yields to buyers today.

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So I asked Nick Britton, research director of the Association of Investment Companies (AIC), to drill down into the database of independent statisticians Morningstar to identify investment trusts that meet the following criteria for decent income and capital returns over the medium term. They are (a) a current yield of 4% or more; (b) dividend growth averaging 4% per annum or more over the past five years; (c) no dividend cuts for at least five years; (d) a positive share price total return over the past five years.

Only 11 investment trusts out of a universe of nearer 300 funds managed to pass those four tests and I’m delighted to own two of them. However, it’ s important to beware that past performance is not necessarily a guide to future returns and dividends can be cut or cancelled without notice.

Bearing those caveats or warnings in mind, the top yielder among these investment trusts for what has been a reliable and rising income in the past is the little-known tiddler, Chelverton UK Dividend Trust Ord (LSE:SDV). It currently yields 9.3%, having increased its dividends by an annual average of 7% over the past five years.

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Several worries offset those encouraging numbers. First, the total return was 62% over the past five years but it lost money over the past year, shrinking by nearly -7.5%. Second, this fund has difficult-to-assess liabilities, which it describes as: “aiming to provide shareholders with a high income and opportunity for capital growth, having provided a capital return sufficient to repay the full final capital entitlement of the Zero Dividend Preference shares issued by the wholly owned subsidiary company, SDVP”.

If that jargon baffles you, then Google “split capital investment trust scandal” for an explanation of how zeroes can complicate matters. Another worry is that SDV has total assets of less than £33 million, albeit invested in the relatively reassuring “UK Equity Income” sector, with underlying holdings led by the radiator-maker Stelrad Group (LSE:SRAD); followed by the agricultural products and services firm Wynnstay Group (LSE:WYN); and the home improvement retailer Wickes Group (LSE:WIX). Yearly charges are steep at 2.73%.

Greencoat UK Wind (LSE:UKW) ranks second among our “first 11 for income” with a current dividend yield of 9.1% rising by an average of nearly 7.6% per annum over the past five years. Once again, there are several capital flies, wriggling around in the income ointment.

First, as this shareholder knows full well, UKW has shrunk investors’ capital by nearly -13% over the past year and its five-year positive return is only 9.6%. Second, critics of offshore wind farms argue that repair and replacement costs could be higher than expected, meaning that this £4.4 billion fund’s net asset value (NAV) might prove misleading. On a brighter note, UKW’s ongoing charge of 0.95% is the lowest in its sector.

Tufton Assets Ord (LSE:SHIP), the marine leasing specialist formerly known as Tufton Oceanic Assets, ranks third among these 11 with a running yield of nearly 8%, rising by 5.7%, with a five-year capital return of 84%.

Once again, the price of a high income has been low returns from this £373 million fund over the past year, at just over 4.2% but at least they remained positive. Annual charges in its somewhat specialised sector look reasonable to this small shareholder at 1.04%.

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Back at the AIC, Britton told me: “Investment trusts open up a world of opportunity to income investors – not just the obvious FTSE 350 candidates but smaller companies, Asian equities, even infrastructure, leasing and private equity.

“Clearly all these different assets have their risks and benefits, which you need to get a feel for before investing. But if you’re searching for a higher yield without being too concentrated in a handful of high dividend payers, investment trusts are an obvious place to look.”

You can see a full list of the 11 funds that met our four criteria for income and growth in the table below.

Source: theaic.co.uk/Morningstar. Data as at: 31 May 2025. Past performance is not a guide to future performance.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Greencoat UK Wind (UKW) and Tufton Assets (SHPP) as part of a diversified portfolio of investment trusts and other shares.