As the ISA deadline early next month approaches, investors are hunting for income-generating shares above all others, according to leading investment platforms, with a bonanza of £8bn heading to shareholders this month alone.
Half of the top ten most bought investment trusts last month were ‘dividend heroes', according to Interactive Investor (ii), the UK's second largest platform, while 12 of the 20 bestselling investments on the platform since the start of the tax year pay a dividend yield of over 3%.
Most bought share overall was Lloyds Banking Group PLC (LSE:LLOY) (dividend yield 4.11%), with Legal & General Group PLC (LSE:LGEN) in second position (7.29% yield), then seventh to tenth were BP PLC (LSE:BP.) (3.58%), Rio Tinto PLC (LSE:RIO) (9.35%), Vodafone Group PLC (LSE:VOD) (7.75%) and Aviva PLC (LSE:AV.) (6.67%).
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"While sectors and investing styles might come in and out of favour, interactive investor customer data confirms that dividends never go out of fashion," said Richard Hunter, ii's head of markets.
With the capital return of the FTSE 100 over the 10 years and one month to the end of February 2023 of 24%, rising to 81% with dividends reinvested, Hunter said company dividends are "a cornerstone of growth investing – powering future returns due to the wonders of compound interest".
"By reinvesting dividends, you allow interest to be earned on interest and, over a longer period of time, investment returns can effectively snowball. Our customers understand that all too well, as our most bought ISA picks tax year to date demonstrate."
Hunter also flagged the £8bn heading to shareholders in March, as big payers including Shell and AstraZeneca PLC (LSE:AZN) show the income power of London's blue-chip index, with distributions from BP, Unilever and Barclays also in the pipeline for what is typically one of the best months of the year for dividend awards.
Most of the dividends are not due until the end of the month, led by roughly £2.5bn to be dished out by AstraZeneca via its second interim dividend, followed by Shell, BP, Barclays, Imperial Brands and Unilever.
A £1,000 investment into the fund tracking the Footsie made at the start of 2013 would have grown to £1,238 rising to £1,809 with dividend reinvested by the end of February 2023, excluding fees, according to ii.
Dzmitry Lipski, ii's head of funds research, said although the UK has a longstanding reputation for equity income, diversification is important when it comes to investing for dividends.
"Casting your investing net further afield across different regions and sectors allows you to spread the risk and reduce volatility to give the best possible chance of generating sustainable and growing income," he said.
"While income investments typically aim to increase their dividend payouts to shareholders, or maintain them at the very least, not all achieve this goal. As such, it pays to do your homework.”
Dividend heroes, as classified by the AIC, are trusts that have increasing their shareholder payout at least 20 years in a row.
Looking at other investment platforms it seems income is not the only priority.
It should be noted that even trusts not yet achieving 'hero' status can good impressive dividend yields, with Greencoat UK Wind PLC (LSE:UKW) on a 5.6% forecast yield, The Renewables Infrastructure Group Limited (LSE:TRIG) on 5.8%, for example, and RIT Capital Partners (LSE:RCP) among those that have increased dividends for over a decade but not yet the required 20 years-plus, and Murray International PLC having paid out every year since the early 1970s but willing to pause in some years and then reverting back to a sustainable trend.
ii’s top 10 investment trusts in February 2023 (*Dividend Heroes)
- Scottish Mortgage Investment Trust PLC (LSE:SMT)*
- F&C Investment Trust PLC (LSE:FCIT)*
- City of London Investment Trust (LSE:CTY) PLC*
- Greencoat UK Wind
- Renewables Infrastructure Group
- Murray International
- BlackRock World Mining Trust
- Alliance Trust PLC (LSE:ATST)*
- RIT Capital Partners (LSE:RCP)
- Merchants Trust plc (LSE:MRCH)*
AJ Bell’s top 10 investment trusts in Jan and Feb (*Dividend Heroes)
- Scottish Mortgage*
- JPM Global Growth & Income
- F&C*
- Greencoat UK Wind
- City Of London*
- The Renewables Infrastructure Group
- Law Debenture Corp
- Murray International Trust
- Personal Assets Trust (LSE:PNL) PLC
- Alliance*
AJ Bell’s top 10 share purchases in Feb
- GSK PLC (LSE:GSK, NYSE:GSK)
- Tesla Inc (NASDAQ:TSLA)
- Vodafone
- National Grid
- Legal & General
- BT Group
- Lloyds Banking Group
- British American Tobacco
- Rolls-Royce Holdings
- Glencore PLC (LSE:GLEN)
HL’s top investment trusts February (net buys, alphabetical)
- BlackRock World Mining Trust PLC
- City of London Investment Trust*
- F&C Investment Trust PLC*
- Greencoat UK Wind PLC (LSE:UKW)
- JPMorgan Global Growth & Income
- Merchants Trust PLC
- Octopus Renewables Infrastructure Trust PLC (LSE:ORIT)
- Pershing Square Holdings (LSE:PSH) Ltd
- Scottish Mortgage Investment Trust PLC*
- The Renewables Infrastructure Group Ltd