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With the FTSE 100 Currently trading near its highest level ever, dividend stocks may see their yields decline soon. This is because the company does not set dividend yields, but rather a ratio of how much the company pays out compared to the share price. As the price increases, the shares cost more but the dividend remains the same, so the yield is a smaller percentage of the price.
However, there are still some opportunities to earn decent dividends when the market recovers. I think the best way is with investment trusts as they tend to remain more stable in a volatile market.
Reliable > large
It's easy to find a lot of dividend stocks with great yields. A quick search will show companies like Vodafone, imperial marksand BT Group. But top returns don't necessarily equal top dividends. Vodafone recently cut its dividend in half after months of falling prices. And tobacco companies often increase their dividends to attract investment because some people consider the industry risky.
I prefer to opt for stocks that have a proven track record of increasing their dividends year after year. A good place to find them is on the Association of Investment Companies' 'Dividend Heroes' list. The list includes several notable investment trusts, including one I plan to purchase this month, Murray Income Trust (LSE: MUT).
Diversified and reliable
With a yield of just 4.3%, Murray Income Trust may not initially look attractive to dividend hunters. But the trust has increased its dividends for 50 consecutive years, so it certainly earned the word “trust” in my opinion. The current dividend per share is 37p and earnings per share are 76p, so the payouts are well covered at a ratio of 56%.
I also see that it is very diversified and provides exposure to business analysis (CHILL OUT), pharmaceutical products (AstraZeneca), consumer goods (Diageo, Unilever), and energy (PA, Total Energies).
It also includes finance-related companies such as Sage, London Stock Exchange Group, experian, and Intermediate capital group. I find the entire list impressive and contains many companies in which I already own shares.
Fees and risks
Like most trusts, Murray Income Trust comes with some fees. It has a 0.5% annual fee and a 0.16% transaction fee. Naturally, this will slightly reduce the return on investment. As such, experienced investors may feel that higher returns are possible by investing in stocks individually. It's certainly possible, but it would require more hands-on portfolio management. I like the passive income aspect of reliable investment trusts.
But with growth of just 4.7% over five years, the trust's share price performance has been poor compared to others. For example, Alliance Trust has increased by 57% and JPMorgan American Investment Trust has increased by 112%. However, these do not offer the same reliable dividend payments.
The stock is currently trading at 862p, a 9.32% discount to the net asset value (NAV) of 955p. The 12-month average is -8.5%. This indicates that the stock is cheaper than the share value it represents and may have good future growth potential.
Overall, I think Murray Income Trust is a great example of a dividend-paying stock that I would pick for small but reliable returns.
