I love the idea of buying investment trusts for a second income. Their stock portfolios are often well diversified by region, sector or asset class, or a combination of these. Investment trusts can also retain a portion of their income each year they can use to pay dividends during tougher market conditions.
Today there are more than 50 investment trusts in the UK alone with dividend yields above 5%. Three in particular have caught my eye as worthy of further research: Chelverton UK Dividend Trust (LSE:SDV), AEW REIT (LSE:AEWU) and Invesco Bond Income Plus (LSE:BIPS).
If City forecasts are correct, a £9,000 investment spread equally across them will generate £675 in dividends this year alone. If done so within a Stocks and Shares ISA, every penny of this would come tax-free.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Forget the FTSE?
The Chelverton UK Dividend Trust focuses on “a high and growing income through investments in mid to small-cap companies exclusively outside the largest 100 UK stocks.”
It’s a higher-risk strategy than one focused that’s focused on FTSE 100 shares. Both share prices and dividends can be less stable during economic downturns. But it also means investors can enjoy much greater yields than a Footsie tracker fund — for 2026, Chelverton’s yield is an enormous 7.9%.
The trust’s portfolio is also well diversified to limit the chances of such volatility. In total, Chelverton holds shares in 68 different dividend payers as varied as insurers and energy producers, to banks, tobacco makers and consumer goods manufacturers. Dividends here have been cut just once since 2010.
Designed for dividends
As the name implies, AEW REIT is a real estate investment trust (or REIT). As such, it’s designed to deliver a steady flow of passive income to investors.
Under sector rules, at least 90% of their annual rental profits must be paid in dividends. This leaves a huge 7.7% dividend yield at this particular REIT for 2026. So what’s the risk?
Firstly, the value of AEW’s shares can drop when rising interest rates hit earnings. This can also have an impact on dividends as greater borrowing costs dent rental profits. Yet investing in any dividend stock comes with risk, and I believe this company is more secure than most others.
Its portfolio is well diversified across 34 companies, spreading the risk of rent defaults. And it has a strong balance sheet to support dividends, with a low loan-to-value (LTV) around 25%.
A 7.1% opportunity?
Invesco Bond Income Plus is different in that it invests in “high-yielding fixed-interest securities.” This can provide added security for passive income chasers as, while companies aren’t required to pay dividends, they must pay interest on any bonds they issue. Trusts like this then distribute it to their investors through regular coupon payments.
Yet of course this doesn’t make them risk-free. Businesses can default on their bond obligations, especially during periods of economic stress or high interest rates. And this trust is especially exposed, with roughly 70% of it invested in below-investment-grade bonds.
The upside is it means Invesco Bond gets a larger return on its investments. And so the dividend yield is a huge 7.1%. I think it’s a great investment trust to consider as part of a diversified portfolio.
Should you invest £5,000 in Aew Uk REIT Plc right now?
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Royston Wild does not hold any positions in the companies mentioned.
