Investment trusts can be powerful ways to generate passive income. They combine the advantages of professional management, diversified portfolios, and being able to hold back capital during strong years to pay dependable dividends.
There are roughly 250 investment trusts on the London stock market today. Dozens of them offer a brilliant blend of high dividend yields and reliable long-term payout growth. But three in particular have grabbed my attention as worth further research:
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Chelverton UK Dividend Trust (LSE:SDV).
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Invesco Bond Income Plus (LSE:BIPS).
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Primary Health Properties (LSE:PHP).
So what makes these trusts dividend specialists? And why should investors seriously consider them today?
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Made in Britain
The Chelverton UK Dividend Trust does exactly what it says on the tin, to coin a phrase. Its objective is to deliver “a high and growing income through investments in mid to small-cap companies exclusively outside the largest 100 UK stocks“.
And so far it’s done a fantastic job of delivering passive income. It’s grown dividends every year since 1999, with only two cuts in that time (during the 2008 Financial Crisis, and last year when it fully repaid its leveraged Zero Dividend Preference (ZDP) shares in cash).
Chelverton’s focus on UK shares has both drawbacks and benefits. It’s less regionally diverse that investment trusts with global exposure. But then this also means it’s heavily exposed to the world’s most generous dividend-paying stock market.
City analysts expect Chelverton’s dividends to begin growing again in 2026. As a result, its dividend yield is an enormous 7.1%.
Licence to yield
The Invesco Bond Income Plus Trust only holds a small number of dividend-paying stocks in its portfolio. Instead, its strategy is to generate income “predominantly [from] high-yielding fixed-interest securities” and, more specifically, government and corporate bonds (as its name suggests).
Today, it has 210 different bond holdings versus just seven equity holdings. This helps protect investors from volatility on the stock market. On the downside, the possibility of bond defaults in this higher interest rate environment. However, those hundreds of different holdings effectively spreads this risk to reduce any fallout on investor returns.
