3 dividend paying trusts that should be considered for a Stocks and Shares ISA
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Dividends are a great way to build a compounded return in a Stocks and Shares ISA. With tons of reliable investment trusts in Britain, it's easy to find the ones that pay regular and reliable returns.
UK residents can take full advantage of their £20k annual tax-free ISA returns.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Investment trusts provide instant access to a highly diversified portfolio of stocks, often across a variety of industries and regions. Since the experts handle them, returns are usually reliable – although usually as little as 1%.
Here, I will highlight three investment trusts with a long track record of paying loyal dividends. I think they would be worth considering as the first investment in a new ISA.
Value in the City
City of London Investment Trust (LSE: CTY) is rated as the number one dividend champion by The Association of Investment Companies. It has been paying a growing dividend for 58 consecutive years.
It holds assets across eight European countries with a heavy exposure to UK equities. This means that it risks losing out if the UK economy slows down. While the 4.7% yield is far from the highest in the UK, its record is reliable. If I am aiming for long-term income, I like this type of stock. I can set you up with a dividend reinvestment plan (DRIP) and let it grow.
The price has increased 188% since 1994, equating to an annual return of 3.6% per year. That's below the FTSE 100 average but common to stocks that deliver value per share.
Game of goods
UK real estate has become the backbone of my investment strategy since the Labor Party came to power. How its new housing policies will work remains to be seen – but I'm hopeful.
Value and Indexed Property Income Trust (LSE: VIP) invests in the most productive but least popular sectors of the UK commercial space. It has an attractive yield of 6.8% and has raised its dividend for 37 consecutive years.
The five-year dividend growth rate is low, at just 2.27%, but the payouts are reliable and consistent. And since the price has increased by 28% in 10 years, its annual return is 2.5%. However, this growth was canceled out by a higher than average ongoing charge of 1.88%.
Investing in real estate trusts can be risky, however. If a global crisis sends the economy into recession, real estate could be hit hard. This is reflected in the variable value of the trust, which decreased significantly in 2008 and 2020.
Choice of bank
With a yield of 4.83%, JPMorgan Claverhouse (LSE: JCH) is another investment trust with a good track record. Its profits have increased for 51 consecutive years, and the five-year growth rate is 4.64%.
This trust also holds some of the top stocks in the FTSE 100, including A shell, AstraZeneca again HSBC. It is similar, and can be considered an alternative to the City of London. Yields are slightly higher but with less growth over the past 30 years. It has increased 120% in three decades, delivering an annual return of 2.7%.
It has a low risk gearing range between 0 and 20%, currently at 8%. However, with a particular focus on UK stocks, it is vulnerable to losses if the local economy falters. It also has an ongoing fee of 0.7%, which eats into profits.
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