The hunt for income continues apace

33 per cent of investment companies yielding more than FTSE 100 average yield

While the hunt for income continues apace, recent figures released by the Association of Investment Companies (AIC) demonstrate that 33 per cent of conventional investment companies are yielding more than the FTSE 100 average annual yield of 3.2 per cent. Of these, 66 per cent are trading at a discount to net asset value.

Annabel Brodie-Smith, Communications Director of AIC, said: ‘The investment company sector has long recognised the importance of dividends and it’s encouraging to see such a significant proportion of the sector yielding more than the FTSE 100 annual average.

‘Investment trusts have the ability to sustain their dividends by building up their revenue reserve in good years, which allows them to pay dividends in difficult years. They do this by retaining up to 15 per cent of the income they receive each year and transferring this to their revenue reserve. Known as ‘smoothing’ dividends, this is one of the defining characteristics of the sector.
‘Income-seeking investors should not get carried away by yield alone. Investors need to consider their risk profile when making an investment decision and if investors are in any doubt they should consult their financial adviser.’

Highest yielding sectors
The Property Direct UK sector has the highest average dividend yield of 7 per cent and is on an average discount of -4.2 per cent, followed by UK High Income (6.6 per cent average yield, -0.6 per cent average discount), Global High Income (5.4 per cent average yield, -2 per cent average discount), Sector Specialist: Infrastructure (5.3 per cent average yield, 1 per cent average premium), UK Growth & Income (4.5 per cent average yield, 0.3 per cent average premium), Global Growth & Income (4.5 per cent average yield, 0.8 per cent average premium) and hedge funds (4.2 per cent average yield, -7.4 average discount).

Dividend and discount data to 31 October 2011. Source: AIC using Morningstar.  AIC Members only. Excludes VCTs and split capital investment companies, leaving 246 companies. FTSE 100 average annual yield over last 12 months to 31 October 2011. Source: Datastream. The value of these investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.