More good news has arrived for dividend aficionados. AJ Bell predicts that FTSE 100 companies should pay out some £85bn this year – pretty much matching a record set in 2018. The blue-chip index is also forecast to yield some 4.2 per cent in 2022, thanks to a combination of dividend increases and share price falls.
Some huge yields are now available on individual stocks, with Rio Tinto (RIO), Persimmon (PSN) and Glencore (GLEN) all trading on 2022 yields that reach into double-digit territory. But it’s worth emphasising that bumper yields, tempting as they might look, always have the potential to indicate a value trap. A high yield is not necessarily a screaming buy if, for example, it has been driven by a collapsing share price. In the context of that note of caution, which applies to the investment trust sector as much as it does to individual companies, some income plays are starting to stand out.
If we look at Association of Investment Companies (AIC) data from 11 July there’s a real mixture of different options on offer, each with their own idiosyncrasies. To start with a name especially high up the yield rankings (ignoring VCTs), structured finance play Fair Oaks Income (FAIR) has seen its already lofty payout rise to 17.7 per cent after a year that has seen shareholders endure an 11.9 per cent loss. BioPharma Credit (BPCR), which invests in debt secured against cash flows derived from the sale of approved life science products, is on a 7.5 per cent yield after an arguably modest 4.9 per cent 12-month loss. Turning to better known forms of debt, CQS New City High Yield (NCYF), which backs some riskier bonds, came with an 8.6 per cent yield as of 11 July after a 2.4 per cent loss over the past year. These losses are smaller than those seen for most equity funds, but there is no guarantee that the relative resilience of these parts of the fixed income universe will last.
To stay with some fairly niche options, it’s interesting to see that trusts in sectors where any kind of dividend is a relative rarity are now offering some quite chunky yields. Princess Private Equity (PEY) trades on a 6.3 per cent yield even though share price performance has been pretty flat for the year, while its peer Apax Global Alpha (APAX) offers a 7.3 per cent yield after a 9.7 per cent loss for shareholders.
Elsewhere big yields are coming from a variety of other places, familiar and otherwise. Yields of 7.8 per cent on BlackRock World Mining (BRWM), 6.7 per cent on abrdn Equity Income (AEI) and 5.8 per cent on BlackRock Latin American (BRLA) shouldn’t surprise us, though investors might ask how long more cyclical sectors and regions can continue to drive the dividend boom.
But some funds not necessarily associated with high yields have joined the camp as a result of severe share price falls. Keystone Positive Change (KPC) has landed shareholders with a paper loss of nearly 40 per cent over a year, yet a strategy usually more associated with growth now sees its shares trade on a 5.8 per cent dividend yield.
Finally, some equity funds that pay a very decent but not sky-high yield from NAV now rank among the highest potential payers. Montanaro UK Smaller Companies (MTU) and JPMorgan Japan Small Cap Growth & Income (JSGI) both pay out 1 per cent of NAV (measured on a set date) each quarter, but share price losses in excess of 30 per cent have pushed recent yields to around 6 per cent.
