Most investors will have seen plenty of news in recent months that dividends are under pressure. Even at investment trusts there’s pressure on the shareholder rewards because so many companies are scrapping or cutting their dividends. Yet, trusts remain one of the more reliable ways to access a dividend payment, often quarterly. Many also offer the potential for growth of your investment as well. Here are two that I’d buy for my portfolio.
The trust that runs against the pack Scottish Investment Trust (LSE: LON:SCIN) is one such investment trust. The contrarian approach of the managers means the trust is risky but has plenty of potential for growth.
The trust has massively upped its stake in gold, with the top holdings including Newmont and Barrick Gold. Top holdings from the UK include defensive shares such as United Utilities, GlaxoSmithKline, and Tesco (LON:TSCO). If you think difficult times lie ahead then this could be a good trust to own.
In a blog in June, the manager said: “Governments now seem determined to create growth and, we suspect, will show increasingly greater tolerance for inflation. This would be a favourable backdrop for a contrarian investor.”
A dividend yield of 3% is steady if unspectacular. In these challenging times, I’d see that as a win if it can be sustained.
I also think there’s a margin of safety in buying the shares right now, as they are trading at a discount of around 11% to net asset value. The shares seem to have the potential to provide both income and growth.
A very different type of trust Baillie Gifford US Growth Trust (LSE: USA) is a very different kettle of fish. Managed by Baillie Gifford – an investment outfit that is a big backer of Tesla – it unsurprisingly focuses on highly rated US stocks. It also has a strong tech slant to it.
Top holdings currently include the likes of Shopify, Amazon (NASDAQ:AMZN), Tesla, and Wayfair. Amazon’s price-to-earnings is over 100, which is astronomical, but it would be brave to bet against the shares right now and against the company continuing to grow. This is why I think investors are piling directly into the shares and also into trusts and funds that are holders of the shares. Technology has been one of the winners from the pandemic.
The Baillie Gifford US Growth Trust’s share price reflects this excitement, so it’s hardly a hidden gem. So far this year, the shares have risen by 60%. I think they could go further. The shares don’t pay a dividend and trade at a premium to the net asset value, so in some ways are riskier for investors. To invest you’d need to be confident that US tech companies will keep growing strongly.
Scottish and Baillie Gifford US Growth Trust are very different trusts in many ways, but I think they complement each other well. The manager styles are complete contrasts, and yet both have done well since the stock market lows of March. As such I think both these investment trusts are ideal for growth.
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Andy Ross owns shares in Scottish Investment Trust. The Motley Fool UK 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 2020