Investment companies still score for yield

In the depths of the pandemic when many companies were slashing dividends to shareholders, investment companies were notable for protecting their payouts. That is controversial because that means paying dividends out of capital. This aspect of so-called reserve management has the opportunity cost of diminishing the powder stores investment companies have to top up holdings and it means missing out on compounding total returns over the longer term. 

Still, for many investors who rely on income from shares, investment companies’ commitment to returning cash has been a boon. Also, a counter argument to cutting dividends, is that had investment companies gone down this route their share prices would have fallen by more - potentially widening the discount to net asset value (NAV) to an uncomfortable level for managers and shareholders. 

Now, many investment companies are still scoring very well on our Alpha dividend yield screens. Although the pandemic is far from over, they remain very good fund structures to play the potential recovery, with the kicker of a dividend. 

Impact Healthcare Reit (IHR), a property investment company focussing on residential and nursing care homes, tops our FTSE All Share screen. Reits must pay out ninety per cent of their rental  profits as income, and IHR offers a yield of over five per cent according to our FactSet data. The income is attractive but on the valuation front, potential investors might want to consider that the premium its share price trades at to NAV has widened again in the last two months.