I’m a big fan of investment trusts, and I’m looking to hold two of them in my 2021 Stocks & Shares ISA.
Investment trusts offer several important benefits, in my opinion. One is I get to spread a modest sum across a range of actively-managed investments, without worrying about any conflict of interest. Buying the shares makes me a part-owner of the trust, and so its managers are working directly for me.
The other key thing I like is the way investment trusts can manage their dividends. Being able to retain up to 15% of their income in any year, they can build a reserve. And that helps to maintain long-term dividend stability.
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Investment trust dividend heroes
I do already hold one, the City of London Investment Trust (LSE: CTY), and it’s just released first-half figures. The Association of Investment Companies (AIC) ranks City of London at the head of what it calls its ‘Dividend Heroes’. That includes all investment companies that have raised their dividends for 20-or-more-years in a row. City of London is in joint first place with Bankers Investment Trust (LSE: BNKR), achieving the feat for 54 consecutive years.
At December 2020, the former trust’s net asset value (NAV) per share stood at 357.4p. That’s up from 344p at 30 June.
Market sentiment appears to have improved. In June 2020, City of London shares were trading at a 1.2% discount to NAV. But the price has picked up since November and, by the end of 2020, it had moved to a 3.7% premium. I still think that’s reasonable value.
55 years of dividend hikes?
But what of my precious investment trust dividends? The company said it’s “confidence that it will be able to increase the dividend for the fifty-fifth consecutive year.” Saying that, the trust did suffer a significant fall in income in 2020, with its revenue earnings per share falling by 15.6%. It’s very tightly tied to the UK market too, so any prolonged economic downturn could hurt both the dividends and the share price.
So, for my next pick, I’ll try to balance my risks. I’m turning back to Bankers Investment Trust. And not just for those 54 years of dividend hikes. While City of London is focused on UK equities, Bankers sets its sights globally. That suits me personally for a couple of reasons. Firstly, I like a bit of global diversity. And, secondly, a chunk of my retirement income is going to be spent overseas, so it might help not to be totally tied to the UK economy.
That would expose me to risks associated with other parts of the world too. And, in many places, markets can be more volatile and subject to weaker regulation. But those are risks I’m prepared to take to fit my personal requirements.
Income vs growth
The dividend yield is only around 2%. But the Bankers Investment Trust share price is up 9% over the past 12 months (while City of London is down 17%, and the FTSE 100 has fallen 10%). Over five years, Bankers shares have more than doubled in price.
Right now, there’s only a modest premium to NAV, at just 0.6%. For my personal circumstances, I think these two really could be the best investment trusts I could buy in 2021.
