The best strategy for novice investors, in my view, is to invest in a fund. That way, your money will be spread out over a whole portfolio of stocks, meaning your risk is reduced significantly.

There are several different types of funds available today, including mutual funds, investment trusts and exchange-traded funds (ETFs). I explained the differences recently here. Today, I’m looking at two investment trusts that I believe are strongly suited to those just starting out. Both can be bought and sold just like regular stocks through an online broker.

The City of London Investment Trust

The City of London Investment Trust (LSE: CTY) is a perfect investment trust for beginners, in my opinion. It’s a diversified portfolio of around 120 stocks that aims to provide long-term growth in income and capital.

The reason this is suited to beginners is that it is managed in a very conservative fashion. It generally invests in well-known blue-chip companies such as Royal Dutch Shell, HSBC Holdings and Unilever and therefore offers a strong degree of stability. The top 10 holdings are shown below:

Source: janushenderson.com. Data as of 31/12/17. 

For the five years to the end of December, the net asset value (NAV) of the trust increased 73%, comfortably beating the return of the FTSE All-Share index, which was 63%.

Furthermore, CTY has an excellent dividend track record, having increased its payout every year for over 50 years now. The current yield is just under 4% and shareholders receive their dividends on a quarterly basis. Management fees are also low at just 0.37%.

I hold CTY in my own portfolio, and I plan to keep holding it for a while to come, enjoying the steady stream of dividends. To my mind, it’s a fantastic core holding.

Temple Bar Investment Trust

Another very similar investment trust, also well suited to beginners, is the Temple Bar Investment Trust (LSE: TMPL).

Launched in 1926, this one aims to provide growth in income and capital, with the portfolio manager specifically targeting undervalued, out-of-favour companies that have strong balance sheets.

TMPL mainly invests in blue-chip companies, and currently has large positions in HSBC Holdings, Royal Dutch Shell, and GlaxoSmithKline. The top 10 holdings are shown below.

Source: templebarinvestments.co.uk. Data as of 31/12/17. 

This trust could also appeal to dividend seekers, as it pays its dividends on a quarterly basis as well. The payout has been increased for 33 consecutive years now, although the yield is a little lower than CTY’s, at 3.1%.

The long-term performance of the trust is solid, with the NAV increasing approximately 70% for the five years to the end of December. Ongoing charges are 0.51%.

Given its successful long-term track record, the Temple Bar Investment Trust looks to be an excellent fund for those investing their first £1,000.

The post Investing your first £1,000? Here are two investment trusts to consider appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Royal Dutch Shell, Unilever, GlaxoSmithKline and the City of London Investment Trust. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended HSBC Holdings and Royal Dutch Shell B. 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.

Investment trusts can be a great way to add diversification to your portfolio. With one simple trade, you have the ability to invest in a portfolio of securities, managed by a professional fund manager. With that in mind, today I’m looking at three dividend-focused investment trusts that could appeal to those looking for high levels of income from their portfolios. 

Murray Income Trust

Run by Aberdeen Asset Management, the Murray Income Trust (LSE: MUT) is an investment trust that aims to achieve a high and growing income, combined with capital growth. The trust invests predominantly in UK equities, however it does have the freedom to diversify into international stocks. 

At the end of June, the top holdings in the trust included Unilever (4.5%), British American Tobacco (4.5%) and GlaxoSmithKline (4.5%), and the largest international positions were Roche (3.4%), Nordea Bank (3.1%) and Microsoft (2.5%). Sector-wise, the trust had the largest exposure to the financials, consumer goods and healthcare sectors. 

Dividends are paid quarterly, and the total dividend paid last year was 32.25p last year, equating to a yield of a healthy 4% at the current share price. The trust has an excellent dividend growth track record, having raised its payout 43 years in a row. Ongoing charges are 0.76%. 

Temple Bar Investment Trust

With 33 years of consecutive dividend growth, the Temple Bar Investment Trust (LSE: TMPL) is another trust that could appeal to dividend investors. 

Launched in 1926, it aims to provide growth in income and capital, and to outperform the FTSE All-Share Index on a total return basis. The trust invests primarily in UK securities, with the majority of portfolio holdings selected from the FTSE 350 index. The portfolio manager uses a contrarian approach to value investing, seeking out undervalued, out-of-favour companies with strong balance sheets. 

At the end of June, the three largest sectors in the trust were financials, cash & short-dated gilts and industrials. The top three holdings were HSBC Holdings (8.1%), GlaxoSmithKline (6.8%) and Grafton Group (5.2%).

Dividends are paid quarterly, and last year it paid out a total of 40.45p, equating to a yield of 3.1% at present. Ongoing charges are 0.51%. 

Merchants Trust 

Lastly, the Merchants Trust (LSE: MRCH) is another trust that has a strong focus on dividend-paying companies. Its objective is to provide an above-average level of income, income growth and long-term capital growth by mainly investing in higher-yielding FTSE 100 stocks. 

Established in 1889, the trust is managed by Allianz Global Investors, with the portfolio manager often looking to go against the herd and invest in high-quality stocks that are out of favour. At the end of June, the trust had the largest exposure to the financials, industrials and consumer services sectors, and the three largest holdings were GlaxoSmithKline (7.4%), Royal Dutch Shell (7.2%) and HSBC Holdings (5.9%).

The Merchants Trust has the highest yield of the three, with this year’s dividend payment of 24.2p equalling a yield of an impressive 5%. Dividends have been increased for 35 consecutive years and are paid on a quarterly basis. Ongoing charges are 0.58%. 

The post 3 dividend investment trusts I’d buy to fund my retirement appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in GlaxoSmithKline and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended HSBC Holdings and Royal Dutch Shell B. 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.

A presentation at the AGM revealed Temple Bar’s top overweight positions relative to the index. Among the FTSE 100 megacaps, GlaxoSmithKline (LSE: GSK), BP (LSE: BP) and Royal Bank of Scotland (LSE: RBS) were the biggest ‘active’ bets.

GlaxoSmithKline

As a dyed-in-the-wool value investor, Temple Bar tends to fish among companies boasting one or more of the classic value ratios of low price-to-earnings (P/E), low price-to-cash flow (P/CF), low price-to-book (P/B) and high dividend yield.

One theme is ‘under-managed’ companies, with scope for operational improvement, cost-cutting, disposal of peripheral assets and suchlike, and where a change of management could be the catalyst for improved business performance and a rerating of the shares.

GlaxoSmithKline looks a good example. It has faced headwinds of expiring patents and tight healthcare budgets in recent years, but a number of shareholders — including the redoubtable Neil Woodford — have been critical of how the business has been managed. There’s scope for change, as the company announced last month that chief executive Sir Andrew Witty will depart in March next year.

Glaxo looks cheap on historical earnings and cash flows, and on a sum-of-the-parts valuation, as well as offering a dividend yield of 5.4%.

BP

Oil companies, of course, have been out of favour with the market for some time, with a low oil price a result of over-supply. The price of oil has picked up of late and BP’s shares have rallied from multi-year lows earlier this year, but still remain thoroughly depressed from their historical highs.

Clearly, the oil price is the biggest single factor in BP’s performance and the shares will rerate higher when the price rises. The case for investing is rather straightforward: like other contrarians, Temple Bar argues that the world simply doesn’t work with oil at the kind of levels seen this year, and that this state of affairs can’t persist indefinitely.

BP trades on a modest 13 times forecast improved earnings in 2017. There’s also a whopping 7.5% dividend yield, although the yield isn’t the driver for investing, as Temple Bar thinks it’s perfectly possible the dividend could be cut.

Royal Bank of Scotland

Temple Bar is heavily overweight in the banking sector, and its biggest overweight is Royal Bank of Scotland. At the AGM presentation, the trust went into detail on why it’s bullish on the sector generally, pointing to considerably improved transparency and strengthened and stress-tested balance sheets. It reckons the rising regulatory burden on banks may be coming to an end, with regulators having “had their pound of flesh”, and also that there may not be much “downside disappointment” left to come on fines.

As far as the attraction of RBS is concerned, Temple Bar is grateful for the market discounting the overhang of the government’s shareholding, as it “consequently provides a cheaper entry price”. The trust also reckons RBS’s dividend is likely to be reinstated within 18 months.

Trading on a P/B of just 0.7, and a current-year forecast P/E of 14, falling to 11 for 2017, there appears considerable scope for an upward rerating in due course, as dividends resume and market sentiment towards the bank improves.

The post What This Top Dividend Trust Is Holding Now: GlaxoSmithKline plc, BP plc And Royal Bank of Scotland Group plc appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended BP and GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Picking great dividend shares has helped Temple Bar outperform the FTSE All-Share Index over the past three, five and 10 years.

Not too many equity income funds currently have three banks in their top 10 holdings — especially with one of those banks not presently paying a dividend! But HSBC (LSE: HSBA), Lloyds (LSE: LLOY) and dividend-less Royal Bank of Scotland (LSE: RBS) all feature in Temple Bar’s top 10.

Going against the crowd

Temple Bar takes a contrarian approach, and sees little value in a number of areas of the market that are currently popular with dividend investors. For example, in its latest annual report, the trust said of utilities:

“We believe investors have been attracted to the high dividend yields of utilities. However, these dividends are typically financed partially out of debt rather than cashflow and, therefore, in our view, are not as attractive as they initially appear. Utilities remain highly capital intensive companies continually at risk of political intervention and these dividends may prove less secure than investors believe”.

Another swathe of popular dividend stocks — “quality businesses” — are also currently off the menu for Temple Bar:

“Many of these companies are found in consumer facing sectors such as food, drink, tobacco, personal care and household products. After many years of strong performance, this group of companies is priced as highly as it has been for decades, yet it is questionable whether its future is as bright as its past”.

With so many popular dividend areas of the market rejected, it’s perhaps not surprising that Temple Bar’s contrarian approach — where value can often take some time to emerge — has led the trust to see an opportunity in banks.

HSBC

HSBC’s shares reached a post-financial-crisis high of pushing £8 in 2013. But they’ve been nearer £6 since, as penalties for past misdeeds have rumbled on, new scandals have surfaced and fears about China’s economy have weighed on sentiment.

As a result of the depressed share price, the dividend yield is high — 5.4% forecast for this year, rising to 5.6% next year. The dividend is covered a reasonable 1.6 times by forecast earnings. HSBC could do with getting its costs down — it’s taking steps to do so — and could offer good value today for long-term investors.

Lloyds

Temple Bar has been invested in Lloyds since before the company’s resumption of dividends, noting shortly before the restart that the Black Horse “moves ever closer to paying a dividend. Once reinstated, this could grow quickly and it is conceivable that the company will have a 5% yield … within two years”.

Lloyds’ shares have lately been making new post-financial-crisis highs. However, investors today could still get Temple Bar’s hoped-for 5% yield within two years on a small pull-back in the shares or a modest upgrade to the analyst consensus forecast. As things stand, the consensus gives a 3.2% yield this year, rising to 4.8% next year.

RBS

Royal Bank of Scotland is behind Lloyds in its recuperation from the financial crisis by perhaps a year or two. RBS may or may not be able to resume dividends this year, and not all analysts are optimistic for 2016. As a result, there’s a lowly 1.5% yield forecast for 2016 — covered a whopping 4.7 times by forecast earnings, compared with Lloyds’ 1.9 times and HSBC’s 1.6 times.

At some point, RBS should get into the position Lloyds is currently in. And, at its current share price — which has gone nowhere for a couple of years — the Scottish bank has the potential for a similarly high dividend payout to Lloyds, for patient investors, such as Temple Bar.

The post What This Top Dividend Portfolio Is Holding Now: HSBC Holdings plc, Lloyds Banking Group PLC And Royal Bank of Scotland Group plc appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.