There are 34 investment trusts with dividend yields over 4%, including more than a dozen with yields higher than the current base rate of 5% and four topping 6.5%.
The number of high yielders, tallied by broker Stifel, has increased from 25 when it carried out its last review in February, which it said reflects some dividend growth and some yields rising in some cases as a result of falling share prices.
"For those investors prepared to take equity risk, we think the yields on these trusts are relatively attractive," analyst Iain Scouller wrote.
Most of these closed-ended funds trusts offer exposure to overseas markets, while a majority also have good records of annual dividend growth and dividend reserves that can be drawn on by boards to pay out to shareholders even when there are dividend cuts at the portfolio companies in which they invest.
"One area of caution is around trusts that pay out a fixed amount of their NAV in the form of dividends – typically this is around 4% of NAV and at times when NAVs fall, such as for some trusts last year, the dividends will automatically be cut," the analyst added.
Topping the list is Henderson Far East Income (LSE:HFEL) with a yield of 10.1% according to Stifel, with the data taken as of 17 July. At that price it has an £386mln market cap and the trust's shares trade on a prem to the value of net asset value of 2.1%.
Next in line are European Assets Trust PLC and abrdn Equity Income Trust PLC both at 7.5% dividend yields, with the former trading at almost a 10% discount and the latter a 1% premium.
After that are Blackrock World Mining Trust (LSE:BRWM) with a 6.6% yield and Henderson High Income Trust PLC (LSE:HHI) on 6.3%, both trading not far from NAV.
The top 10 is rounded off by TR Property Investment Trust plc (LSE:TRY) at 5.8% yield and an 8.5% discount; Blackrock Latin American at 5.5% and 10.1%; Lowland Investment Trust Plc (LSE:LWI) at 5.4% and 11.1%; JPMorgan China Growth & Income at 5.2% and 11.5%; and Merchants Trust plc (LSE:MRCH) at 5.2% and 0.2%.
Trusts that pay out a ‘fixed percentage of NAV’ are "manufacturing" yield through this process, in the view of the Stifel team.
"This is because a few of them are paying dividends which are at a level higher than the trust receives in its revenue EPS. Therefore, they are funding the revenue shortfall by paying out of their capital, i.e. from the NAV."
Examples of fixed percentage trusts in the top 10 are European Assets, Blackrock Latin American and JPMorgan China.
Among the overseas investments, Scouller noted that a number of Asian investors have high yields, but that while Henderson Far East has a high yield it has a "poor capital return", with the share price total return over the past five years is -4%, compared to +25% for abrdn Asian Income.
The analyst also flagged that BlackRock World Mining pays out all its income as dividends, "and therefore the dividend may be reduced at times when the underlying mining companies cut their dividends.
"We would not be surprised to see a lower dividend paid in the current year to 31/12/23, compared with the 40p paid in the past year to 31/12/22. However, it seems reasonable to expect that even if the dividend is reduced, the dividend yield would remain in excess of 4%."