The proportion of investment trusts paying quarterly dividends has risen from 43 per cent in 2016, to 46 per cent in 2017 and 50 per cent as of 21 February 2018, according to the Association of Investment Companies (AIC), due to strong investor demand for yield.
Equipment leasing and asset finance trust SQN Asset Finance Income Fund (SQN), meanwhile, is the latest to introduce monthly dividends, bringing the number of trusts that do this to six. SQN Asset Finance Income has a yield of about 8.12 per cent and invests in collateralised investments in business-essential equipment, hard assets, and asset- and- equipment-based project financings.
Trusts paying monthly dividends
| Investment trust | AIC sector | Dividend yield at 13/02/18 (%) |
| Ediston Property | Property Direct - UK | 5.28 |
| F&C Commercial Property | Property Direct - UK | 4.28 |
| Fair Oaks Income 2014* | Sector Specialist: Debt | 15.4 |
| Fair Oaks Income 2017 | Sector Specialist: Debt | 13.38 |
| SQN Asset Finance Income | Sector Specialist: Leasing | 8.12 |
| SQN Asset Finance Income C shares* | Sector Specialist: Leasing | 2.1 |
| SQN Secured Income | Sector Specialist: Debt | 6.9 |
| TwentyFour Select Monthly Income | Sector Specialist: Debt | 6.55 |
Source: The Association of Investment Companies
*Indicates additional share class
"With interest rates still near record lows income is very much on investors' agenda," said Annabel Brodie-Smith, communications director of the AIC. "There are a number of income advantages for investment companies, including the ability to smooth dividends by holding back some of the income they receive in good times to boost their dividends in tougher times. The closed-ended structure of investment companies makes them particularly suitable for higher-yielding illiquid assets such as property and infrastructure."
Trusts paying monthly or quarterly dividends can be useful for some investors, but are not relevant for others, for example if they have a growth focus.
"For people who are managing their own self-invested personal pensions (Sipps) and individual savings accounts (Isas) to generate a regular income, having a trust that pays quarterly dividends might make it easier to smooth that income over the year," said David Liddell, chief executive of online investment service IpsoFacto Investor. "It depends on your circumstances, though, so I don't think quarterly dividends would be the starting point when deciding whether to invest in a fund. If a trust was paying a quarterly dividend and had the same yield as another trust that was paying half-yearly, then you might go for the one that is paying a quarterly dividend [to smooth out your income].
"But you can envisage a situation where it may be more useful to have a trust that pays out a twice-yearly dividend, as often the second instalment will be larger than the first instalment so you get a bigger shot of income later in the year."
The percentage of investment trusts paying out income twice a year has reduced from 28 per cent in 2017 to 26 per cent as of February 2018. And the percentage of trusts paying annual dividends has fallen from 23 per cent in 2017 to 21 per cent this year.
There are no longer any investment trusts that pay a dividend three times a year since European Assets Trust (EAT), the only trust that did this, moved to making quarterly dividend payments. This trust invests in small and medium-sized companies in Europe excluding the UK and aims for long-term capital growth alongside an attractive dividend, which is paid in January, April, July and October of each year. It pays out 6 per cent of its year-end net asset value (NAV) as dividends, which is funded from both income and capital.
