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Thirsty for income?

Thirsty for income? Here’s how to find a cash oasis in the dividend desert and position your portfolio

By ROSIE MURRAY-WEST FOR THE MAIL ON SUNDAY

PUBLISHED: 22:26, 25 July 2020 | UPDATED: 10:15, 26 July 2020

Obtaining a nice, safe income stream used to be one of the main reasons for becoming an equity investor. But not any longer. Since the outbreak of coronavirus, company dividend payments have dried up.

The latest dividend report from Link Group, which monitors payouts from UK companies, indicates that dividends for the second quarter of this year declined by 57 per cent compared with the same time last year…

Equities are still main income gain in town 

…Many experts believe that income-orientated investment trusts are a good way to maintain a steady income in tough times.

This is because unlike other investment funds that pay out all the income they receive each year to investors, investment trusts don’t have to. They can hold back income in the good years to boost dividend payments in leaner years.

Such income reserves are proving invaluable in the current environment. James Carthew, head of investment company research at analyst QuotedData, says most trusts have enough income squirrelled away to see them through the short term, but warns that these reserves will not last forever.

He says: ‘On average, most income-friendly trusts seem to have about nine months to a year and a half’s income held in reserve.

‘That should be more than enough to get them through the current UK dividend crisis.

‘But a second coronavirus wave or a severe recession could strain the income resources of some of these trusts.’…

Carthew likes investment trust Diverse Income, run by asset manager Miton. He explains: ‘Its managers are known for their skills in picking income-paying smaller company stocks.’

‘This gives confidence that they can withstand any deterioration in the region’s economic outlook. The pandemic has highlighted the importance for investors of having a well diversified portfolio of income stocks.’…

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