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Looking for retirement income? I’d consider these investment trusts that pay dividends

Edward Sheldon, CFA
Happy retired couple on a beach

Investing in dividend-paying companies can be a great way to create a passive income in retirement. However, if you’re interested in building an income stream this way, you don’t necessarily have to invest in individual dividend stocks yourself as there are plenty of funds and investment trusts that pay dividends to their investors on a semi-annual, quarterly, and even monthly basis.

With that in mind, here’s a look at two dividend-paying investments trust that I believe are well suited to those looking for retirement income.

Murray Income Trust

The Murray Income Trust (LSE: MUT) is one that, as its name tells us, focuses on providing income for its investors. Its objective is to generate a high and growing income stream along with a little bit of capital growth. Rated four-star by research specialist Morningstar, it currently offers a yield of around 4% and pays out dividends quarterly.

There are a number of reasons I think the Murray Income Trust is a great retirement income pick. Firstly, it predominantly invests in large, dependable blue-chip companies. For example, its top holdings currently include the likes of Diageo, Unilever, BHP, and GlaxoSmithKline. So, it offers an element of stability. 

Secondly, I like the trust’s focus on income growth. This is an advantage from a retirement income perspective as income growth can provide protection against inflation. The trust has increased its dividend for 45 consecutive years now, which is an excellent achievement.

Finally, MUT has a solid performance track record, having outperformed the FTSE All-Share index over one, three, and five years (performance to 31 August). So, not only has it churned out fantastic dividends, it has also beaten the market. Overall, I see this trust as an excellent retirement income pick. Ongoing charges are 0.69% per year.

City of London Investment Trust

Another income-generating trust that I believe is well suited to retirees is the City of London Investment Trust (LSE: CTY). Like Murray, it has a four-star rating from Morningstar. Currently, it offers a yield of around 4.5% and it pays out dividends on a quarterly basis.

What I like about this particular trust is that the fund manager, Job Curtis, has a very conservative investment management style. This means it has sleep-well-at-night qualities. In my view, this makes the trust ideal for those who are looking for peace of mind from their investments in retirement. Top holdings currently include Royal Dutch Shell, Diageo, and HSBC.

This one also has a fantastic long-term dividend growth track record having now registered 53 consecutive dividend increases. One reason it has been able to do this is that it tucks excess income away as reserves so that if the dividend income from the companies it owns falls, the trust can still increase its payouts to investors. Over the last 10 years, it has also beaten its benchmark, the FTSE All-Share index, by a wide margin. 

Overall, given its solid yield and conservative approach to stock picking, I think CTY is a great choice for those seeking retirement income. Ongoing charges are low at just 0.39% per year.

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Edward Sheldon owns shares in Murray Income Trust, City of London Investment Trust, Diageo, Unilever, GlaxoSmithKline, and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019