The ten investment trusts with the highest dividend yields

Here at MoneyWeek, we believe investment trusts are one of the best ways to participate in the stockmarket. Trusts have a record of beating unit trusts, tend to have lower management fees, and their closed structure means they can more easily make long-term investments.  

On top of these qualities, they can also borrow money to invest, which can improve returns, and they can also hold back 15% of the income generated from their portfolios every year to build what is known as a “revenue reserve”.  

This is another key difference between investment trusts and traditional open-ended funds. It means in the good years they can put aside a bit of money to build a pot of cash they can dip into when the environment changes.  

As such, they are more likely to be able to maintain their dividends over the long term. Indeed, in 2020 when a large number of companies decided they were going to hold back their dividends in order to conserve cash in the pandemic, few trusts followed. They were able to dig into their revenue reserves and maintain shareholder distributions.  

Using this strategy, some investment trusts have grown their dividends every year for more than half a century! 

With that in mind, is a list of the ten highest-yielding investment trusts on the market today.  

Some of these investment companies support dividend yields in the double digits, but a word of warning – many rely on non-traditional investments to generate returns, including assets like mortgage securities and short-term loans. Not only are these assets more complex and, as a result, riskier, but they also tend to incur higher fees and charges.  

This list only includes trusts priced in sterling  

Crystal Amber Fund (LSE: CRS), the Aim-listed activist fund, tops the list of the highest-yielding investment trusts, and it’s also trading at one of the largest discounts to net asset value. However, while the headline yield figure might seem attractive, I should note that the firm is in the process of selling off its underlying assets and returning the capital to investors. Therefore, further cash returns are likely to be lumpy.  

It returned 10p per share in the middle of August and management is looking to payout a further 60p per share by the end of September. If these returns are achieved, the fund would have returned 80p per share in the first nine months of 2022.  

The rest of the list is primarily composed of investment trusts that own and trade different credit instruments. By targeting different segments of the market, these trusts are able to earn above average market returns, although the trade-off is that they are taking on more risk.  

The investment trust with the highest yield I’d buy today  

If I had to pick just one of these trusts, I’d buy the CQS New City High Yield Fund (LSE: NCYF).  

This investment company uses equities and credit investments to achieve its aims of generating a sustainable income stream for its investors and growing the capital value at the same time. 

Unlike other specialist investment trusts, including those on the list above, its fees are relatively low at just 1.25%. 

Although quite high in comparison to other instruments such as index funds, trading and analysing complex debt instruments is not an easy task. 

Trusts that specialise in generating a market-beating level of income by acquiring such assets are always going to be more expensive. So, investors need to balance the cost with the overall package on offer.  

CQS does it seem to offer an attractive opportunity with relatively undemanding costs. With a yield of 8.6%, it is one of the higher yielding sterling-traded trusts on the market, although unfortunately the shares are trading at a slight premium to net asset value.  

The trust's ability to find interesting and exotic income assets is the most appealing quality. In June, it acquired the bonds of a company called Galaxy Finco, otherwise known as Domestic and General. The bonds yield 9.25% – an incredibly attractive income opportunity in the current environment. 

In July, the fund was also taking advantage of what it called an “illiquid period” over the summer to acquire two bonds at well below par value (100). One of these was a holding in offshore oil rig operator Transocean, yielding 11.5% and falling due in 2027. 

Just under 20% of the portfolio is invested in fixed income assets, with the remainder invested in convertible bonds, equities and preferred shares. The largest single stock in the equity portfolio is Diversified Energy (DEC), the FTSE 250 energy company, which currently supports a dividend yield of 10.2%. 

SEE ALSO:

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The ten highest dividend yields in the FTSE 100
The ten highest dividend yields in the FTSE 250
The ten highest dividend yields on Aim