The investment trusts that pay the highest income revealed (2024)

Dividend shares have traditionally been an abundant spring for thirsty investors, but the recent perils suffered by favoured income stocks Pearsons, Admiral and Provident Financial are a timely reminder of the risks DIY investors face from individual companies.

To circumvent this, many income investors have turned to investment trusts in which a fund manager uses their expertise to build a diversified portfolio, so they don't have to.

And there are some trusts that deliver eye-catching returns if you know where to look. Investment research firm Stifel has done some of the leg work for investors by compiling a list of the 13 investment trusts that invest in shares and have dividend yields of at least 4 per cent.

The trusts identified in the list all predominantly invest in shares. The names on it range from dividend hero City of London, with 50 years of rising payouts under its belt, to Aberdeen Asian Income and European Assets Trust, which yields 6.7 per cent.

All but four trusts on the list trade at a discount to their net asset value - with the biggest at 12.4 per cent - which provides an opportunity to buy into the investment trust for a price that is less than the sum of its parts.

However, you shouldn’t assume that buying at a discount is automatically a good thing. It can also reflect when an investment style or sector has fallen out of favour - perhaps for good reason.

In a similar vein, a trust trading at a premium may suggest that its investment strategy is not only all the rage and working well but is predicted to yield impressive results in the future.

According to Stifel, there are 13 investment trusts boasting dividend yields of 4 per cent or more in September, up from 11 six months ago.

Top three

With a historic yield of 6.7 per cent, European Assets Trust tops the list. Run by Foreign & Colonial Investments, the firm behind the oldest investment trust, invests in small and medium-sized companies in Europe, excluding the UK.

It resets its dividend level each year. The dividend is primarily financed by a return of capital and for 2017 the board's dividend forecast equates to a yield of 6.7 per cent, according to Stifel.

At present, the trust trades at a premium of 0.9 per cent to its net average value (for more, see box right).

Blackrock Commodities Income secured the second spot on the list. The trust, seeks to achieve its investment target by investing primarily in securities of companies operating in the mining and energy sectors.

The trust's dividend yield was cut this year to 4p from 5p in the previous year. However, the shares remain high yielding despite the reduction, with a dividend yield of 5.7 per cent and trades at a 5.3 per cent discount.

Third spot is occupied by Henderson Far East Income, which trades on the Pacific, Australasian, Japanese and Indian stockmarkets. It boasts a yield of 5.6 per cent and currently trades at a 3 per cent premium.

UK equity trusts - high yielders

A number of UK equity specialist trusts yield more than 4 per cent, according to the Stifel research.

Merchants Trust, which invests mainly in higher-yielding FTSE 100 companies, has the highest yield in this sector at 5.1 per cent.

At the same time, the trust trades on a 1.9 per cent discount.

This figure is dwarfed by the 12.4 per cent discount shares in theValue & Income Trust trade at - the highest out of the trusts listed. It is worth flagging again that while discounts can represent a buying opportunity, they can also be a warning sign in some cases.

The trust generated a 4.1 yield by investing primarily in UK shares andconvertible securities - an investment that can be changed into another form, such as bonds that can be converted into equity.

Meanwhile, Aberdeen Asset Management's Dunedin Income Growth, which invests in companies listed or quoted in the UK, generated a 4.6 per cent yield and trades at a discount of 8.2 per cent.

Murray Income, which is also run by the same fund house, is on a 7 per cent discount, with a 4.2 per cent yield from investing mainly in UK stocks.

City of London Trusthas moved back on to the list, reflecting dividend growth during the year.

It delivered yield of 4 per cent and trades on a 3.1 per cent premium to NAV.

More impressively, it has chalked up a 51-year record of annual dividend increases.

Asian income

Aberdeen Asian Income, one of only two Asian focused funds featured on the list, has generated a yield of 4.3 per cent by largely ignoring Japanese firms and instead focusing on opportunities within Asian Pacific.

The trust offers better value on a discount basis (4.9 per cent) than the second Asia focused trust on the list, the previously mentioned Henderson Far East Income, which is trading on a 3 per cent premium, although its yield is higher.

European trusts

European Assets and Baring Emerging Europe are the only trusts with a European mandate featured on the list.

The latter, which invest in companies domiciled in emerging European countries, joins the list following the revision to its dividend policy a few months ago.

The board is now prepared to pay out up to 1 per cent to NAV from capital to supplement the dividend which is financed from the revenue account.

Taking into account this new payout policy, the Stifel analysts estimate a dividend yield of 4.0 per cent in the current year.

Shares in the trust trade on a significant 9.4 per cent discount which could signal a buy opportunity.

High-yielding commodity trusts

With the exception of BlackRock Commodities Income, the only other trust skewed to commodities investments isEcofin Global Utilities & Infrastructure.

It makes the list having become eligible for inclusion after offering ordinary shares.

The trust, which mainly invests in utility and infrastructure companies in developed countries, boasts a yield of 4.9 per cent and trades on a 9.2 per cent discount.