One great thing about investing for passive income is that it can become very low maintenance. Once the initial research is done and the dividend stocks are tucked away in a portfolio, the only real upkeep is reading the company reports a couple of times a year.
Here, I’ll spotlight two dividend-paying investment trusts that I think are worth checking out for income.
Established in 1889, Merchants Trust (LSE:MRCH) is one of the UK’s oldest investment trusts. It’s listed in the FTSE 250 and aims to provide above-average income growth, as well as long-term capital appreciation.
Merchants holds 53 dividend stocks, including FTSE 100 staples such as GSK, Lloyds, Shell and BP. However, it isn’t afraid to bank profits and take positions in lesser-known companies.
For example, it recently trimmed strong performers including British American Tobacco, Barclays and Burberry. With the proceeds, Merchants started a new position in MONY Group, the company behind websites such as MoneySuperMarket and MoneySavingExpert.
Portfolio manager Simon Gergel says MONY “is attractive, given potential future growth and efficiency opportunities. This is backed by a strong balance sheet, healthy cash generation and a 6% dividend yield.”
The fact that Merchants’ portfolio is full of UK stocks adds some risk, because the economy is currently in a fragile state. Some of the holdings might struggle in this tough environment, resulting in weaker earnings and dividend growth.
The flip side to this, of course, is that tons of UK shares are cheap. And this inevitably creates opportunities, as Gergel points out: “We are finding numerous cheap UK companies to invest in, especially among the medium-sized businesses. These have been largely shunned by investors and many are offering compelling value, even allowing for subdued domestic growth in the short term“.
In this spirit, Merchants recently added three building-related companies: building products supplier Marshalls, housebuilder Barratt Redrow and building materials distributor Grafton.
The stock sports a decent 5.4% dividend yield. And it’s currently trading at an 8.2% discount to net asset value (NAV), suggesting there’s solid value here.
Of course, no dividend is guaranteed. But I find it encouraging that Merchants has increased its annual payout for 43 consecutive years.
3i Infrastructure (LSE:3IN) is also in the FTSE 250, but has stakes in unlisted infrastructure companies across the UK and Europe. These range from offshore wind vessels and fibre communications networks to biogas plants.