While FTSE 100 stocks are my favourite way of generating passive income in my portfolio, I like to hold a sprinkling of investment trusts too.
There are some great income-generating trusts out there. I’ve repeatedly highlighted UK equity income favourites like City of London Investment Trust, which currently yields 4.7%, and Merchants Trust, which yields 4.6%.
These offer terrific yields
Yet a handful offer even higher yields, which would allow me to generate more passive income from this year’s £20,000 Stocks and Shares ISA contribution limit.
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I held one of these trusts about 15 years ago, from the days before I understood the merits of long-term buy-and-hold investing. It’s Henderson Far East Income (LSE: HFEL) and currently yields a thumping 9.1% a year from a portfolio of shares from the Asia-Pacific region, including Australia, China, South Korea, Singapore, Hong Kong and Taiwan.
Top holdings include include big names BHP Group, Macquarie Group, Samsung Electronics, Rio Tinto and Taiwan Semiconductor Manufacturing.
Henderson Far East Income was launched way back in 1930 and manages assets totalling £408m. It’s in demand and currently trades at a premium of 2.5% to net asset value.
It aims to offer capital appreciation as well as income, although it hasn’t done as well on this front. The share price is down 4.8% over the last year, and is up just 4.6% over five years. That’s disappointing, given that its benchmark index, Asia-Pacific Equity Income, is up 29.3% over the same period.
Henderson Far East Income prioritises income over growth, and on that front it delivers. While Asia-Pacific markets can be volatile, this trust nicely balances my FTSE 100 holdings.
I’m also intrigued by the abrdn Equity Income Trust (LSE: AEI), because its yield of 6.8% is notably higher than most UK funds. Yet there are some really impressive dividends on the FTSE 100 today, with a dozen stocks yielding between 7% and 10%.
Some familiar names here
The fund’s top holdings include FTSE 100 favourites BP, Shell, NatWest, SSE, National Grid, Imperial Brands, Barclays and Glencore. I’d happily hold any of those directly. But with this fund I get exposure to all of them in one go.
Abrdn Equity Income Trust was launched in 2005 and is worth around £160m. The share price is down 3.1% over the last turbulent year year, and is down 2.9% over five years. Again, that’s well below its benchmark IT UK equity income index, which grew 21.5%. I guess that’s the trade-off for higher income (it’s up 47.3% over three years though). This trust is also in demand, trading at a tiny discount of -0.5% to its underlying net asset value.
If I split a £20,000 ISA allowance between these two trusts, I’d get income of £910 a year from Henderson Far East Income and £680 from Abrdn Equity Income Trust.
My total annual income would be £1,590 in the first year. While dividend income is never guaranteed, that’s still impressive. Also, an investment trust reduces the danger by spreading risk across dozens of stocks. I’ve added both to my buy list and will snap them if they dip at any point, so I can pick them up at a discount.
