Wealth Guru Jeff Prestridge Recommends 12 Investment Trusts for Consistent Monthly Income

Investing for income, though often overshadowed by the pursuit of quick gains from growth stocks, remains a sensible strategy for investors of all ages, according to wealth expert Jeff Prestridge. This conservative approach, he argues, can be a powerful tool for long-term wealth accumulation and for supplementing income during retirement.

Prestridge himself has adopted this strategy within his tax-free stocks and shares Individual Savings Account (ISA), building a portfolio rich in investment trusts. These trusts aim to provide a blend of long-term capital appreciation and increasing income. He highlights examples like Alliance Witan, Bankers, Brunner, and JP Morgan Claverhouse, which collectively boast over two centuries of consistent annual dividend growth and a commitment to incremental income increases.

While growth-oriented investments are also part of his portfolio, these income-focused trusts serve as a stabilizing force. They provide quarterly dividends, which Prestridge currently reinvests to acquire more shares, with the future intention of using this income to support living expenses upon retirement.

Prestridge favors investment trusts over individual income stocks like British American Tobacco or HSBC, citing the diversification benefits of trusts that hold a broad array of income-yielding shares. He contrasts this steady approach with a more volatile, speculative strategy, invoking the fable of the tortoise and the hare to emphasize the value of slow and steady progress.

Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC), concurs, stating that investment trusts offer a "treasure trove of income opportunities." This sentiment is echoed by the outlook for dividends, with the investment platform AJ Bell predicting that the 100 largest UK companies will distribute £88.8 billion in dividends this year, the highest since 2018. Allianz Global Investors also expresses optimism about dividend growth across Europe.

To construct an income-generating portfolio, Prestridge utilizes the AIC's free online "my portfolio" research tool. This tool allows users to simulate portfolio income over time, identifying which trusts pay dividends in specific months and by how much. It also provides crucial data on total returns, dividend dates, and yield.

Prestridge is confident that his chosen portfolio will yield higher income in the coming 12 months and beyond. This confidence stems from the fact that all the investment trusts he has selected have a track record of increasing their dividend payments for at least 20 years, with some extending this for close to 60 years. These trusts have demonstrated resilience, maintaining dividend growth through challenging periods such as the 2007-2008 financial crisis and the COVID-19 pandemic. Their ability to sustain and grow these payments is partly due to rules allowing them to set aside income in good times for use during leaner periods, and to dip into capital reserves.

Devising a Successful Income Portfolio

The 12 selected trusts share key characteristics: a minimum of 20 years of dividend growth and a commitment to its continuation, along with quarterly income payments that ensure a monthly distribution, albeit uneven. Crucially, they differ in their investment focus, ensuring broad diversification across markets and investment houses. Four trusts are UK-focused, leveraging the income potential of domestic stocks. International exposure is provided through three worldwide trusts, two focusing on Asian markets, and two targeting the US and emerging markets. The portfolio is rounded out by International Public Partnerships, which generates income from infrastructure investments, including energy transmission and rolling stock leasing.

This diversification extends to the management groups, with ten different investment companies overseeing the trusts. Janus Henderson manages multiple funds within the selection, including Law Debenture, North American Income, and Henderson Far East Income.

Portfolio Performance and Income Potential

Prestridge simulated a £12,000 investment, £1,000 in each of the 12 trusts, using the AIC's tool. Over the past year, this hypothetical portfolio would have generated £468 in income, averaging £39 per month, with at least one dividend payment received each month. Projections for 2025 and 2026 indicate potential income totals of £461 and £468 respectively. In the last full tax year, the income reached £479.

Given the trusts' consistent dividend growth, Prestridge anticipates that income totals will surpass these figures in the next 12 months and for the full calendar year of 2026. Even if income remained static at £468, this would represent an annual yield of nearly 3.9%, increasing to 4.2% if the income reached £500. This growing income stream is viewed as a valuable addition to potential capital gains.

Brodie-Smith notes that the "income finder" feature of the AIC's tool was specifically designed to assist investors seeking a consistent annual income, highlighting the importance of income as a priority for many investors who find investment trusts to be a reliable source.

Considerations for Investors

Prestridge plans to monitor the performance of this income-focused portfolio. Investors can utilize the AIC's online tools to create their own virtual income portfolios. However, he advises caution regarding costs, such as stamp duty and platform fees, which can affect returns. He strongly recommends holding such investments within tax-efficient wrappers like ISAs or Self-Invested Personal Pensions (SIPPs) to mitigate potential capital gains and dividend taxes, particularly if future tax rates are increased.