Murray's quality income on the cheap

However, one of the more popular conservatively run open-ended funds, Invesco Perpetual Income, has lost its famous manager, Neil Woodford.

One option that beleaguered savers and Woodford alternative seekers might consider instead is to delve into the Association of Investment Companies’ (AIC) dividend heroes. This is the group of investment trusts that continue to report consecutive annual dividend increases, with track records dating back decades. Several of these are from the AIC's UK equity income sector.

UK equity income dividend heroes

One of the most conservatively run dividend heroes, with the longest track record of raising dividends is City of London Investment Trust (CTY), a core holding for many Investors Chronicle readers. However, this, like many of the AIC dividend heroes trades at a premium to its underlying net asset value. Discounts have tightened across the trust universe, with the IC’s investment trust columnist John Baron being forced to turn to out of favour sectors in the search for income at a time when higher-yielding trust discounts have all but disappeared.

Annabel Brodie-Smith, communications director at the Association of Investment Companies, says: "With interest rates still at record lows, investment companies' ability to consecutively increase dividends has become an increasingly appreciated feature of the sector. The demand for income has been a contributor to the historically low discounts of the sector. Indeed, some of the income focused investment companies are not having to issue new shares to help keep up with demand."

However, we have spotted one dividend hero that has recently started to look like a bargain: Murray Income Trust (MUT), which also happens to be an IC Top 100 Fund.

The trust aims to achieve a high and growing income combined with capital growth through investment in a portfolio principally of UK equities. Its share price has underperformed the FTSE All-Share over the past year and this may have prompted some investors to sell up, leading to the trust trading at a discount to its underlying net asset value.

The Company’s net asset value also underperformed the benchmark over the six months to 31 December. The manager stated in his half-yearly report: “The main negative contributors were the overweight positions in pharmaceuticals and utilities where our holdings failed to match the benchmark constituents’ returns over the interim period.

He invested in one new holding during the period: Inmarsat, the global satellite communications company which offers exposure to the growing demand for high speed data services. The manager said: "The company benefits from global coverage, a technological edge and very high barriers to entry coupled with a healthy dividend yield."

However, we think that the track record of this trust looks solid. Over three and five years it has beaten the FTSE All-Shares Index by a decent margin. It hasn’t changed manager recently either and would make a good core holding for savers looking to dip their toes into higher-risk income options or investors looking for alternatives to Invesco Perpetual Income. You would be buying a 4.54 per cent dividend yield at a discount of 4 per cent, which looks attractive. Buy.

Source: Murray Income Trust and Investors Chronicle, as at 11 March 2014.

Discrete performance (%)

Source: Murray Income Trust

Top 10 holdings (as at 31 January 2014)

Sector breakdown (as at 31 January 2014)