Dividend heroes, or aristocrats, are stocks that have historically increased dividends every year for at least 25 consecutive years. I am hunting down the companies that could turn into the next generation of investment trust dividend heroes. Investment trusts attract me because these companies make it a priority to ensure income will be paid to investors. I want a lifetime of passive income, so this is music to my ears.
There are some absolute gems waiting in the wings to become big-time dividend heroes. The up-and-comers list is a specific list. It covers investment trusts that have increased dividends for at least 10 years, but less than 20. There’s no guarantee these trusts will make it to dividend hero status, but all are well on their way.
Opportunities for high passive income
Evolution normally yields better performance. I feel the latest crop of newcomers could reward long-term investors like me better than the last generation. I already note more choice in terms of attractive yields among the up-and-comers compared to the old guard. A simple scroll on the Association of Investment Companies‘ (AIC) website shows the new guard are higher yielding. More of them yield over 4% more than the current crop of dividend heroes.
Up and coming dividend heroes in focus
High inflation usually makes the real return of any income yielding instrument a negative one. Somehow, CQS New City High Yield fund offers an inflation-busting yield of 8.4%. The company invests rather expertly in high-yielding bonds. So it is a trust that could top the list for yields for a long while. At the current yield, I’d receive £300 a year from a stake of just £1,000 (if I was aiming to be invested for 25 years, and the yield remained consistent). The Henderson Far East Income fund is another extremely high yielding (8.3%) trust. It targets companies with high and sustainable dividends in the Asia Pacific region.
There are other high yielding trusts. But not many have the strong diversification benefits and alpha strategies of the aforementioned companies. These factors lead me to believe Henderson and CQS can continue being consistent long-term dividend payers.
Passive income leaders
Just because I see an investment company is higher yielding than another does not make it a better long-term investment. For instance, I note most of the trusts on the AIC’s ‘next generation’ list place a much greater emphasis on growth over income.
I observe that there are a lot more companies in the next generation list than actual dividend heroes. So more research is required from me to ensure I accurately spot the next dividend heroes.
However, the eye-catching yields offered by up-and-comers like Henderson Far East Income and CQS are hard for me to overlook. Especially because the income being paid out is likely to grow over time.
I intend to buy several up-and-coming investment trust shares that can provide me a with a passive income for life. Henderson and CQS are at the front of the queue, but clearly there is more research for me to do regarding my best long-term options.
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Henry Adefope has no position in any of the shares mentioned. 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 2023