The Law Debenture Corporation (LSE: LWDB) share price is up almost 20% in the last six months. And the stock has increased more than 40% during the past 12 months. Of course, previous performance isn’t an indication of future returns.
But I reckon the LWDB share price can keep climbing. The investment trust offers an attractive dividend yield, which income hungry investors, like me, can’t ignore. Here’s why I’d snap up the shares.
The portfolio
LWDB is an investment trust that invests in UK stocks with various market caps. It’s benchmarked against the FTSE Actuaries All Share Index and aims to deliver a higher total return than this.
The 1bn portfolio is typically diversified across 140 stocks. As I mentioned, this is mainly UK shares, of which typically 66% is invested in FTSE 100 companies, 33% in UK mid- and small-cap firms, with the remainder distributed across global companies. This includes North America, Europe, Asia, and the rest of the world where the fund managers believe there are opportunities.
What I really like about LWDB is that the portfolio turnover is low. This means that the fund managers hold onto investments for the long term and aren’t chopping and changing the holdings frequently. According to the investment trust’s factsheet for May, it holds the likes of BP, Royal Mail, and Lloyds.
Fund managers
LWDB is managed by James Henderson and Laura Foll. Both have been working together for over 10 years managing UK equity income portfolios.
The investment pair have developed a contrarian investment style. This means that they will look for out-of-favour stocks that are trading at valuation discounts to their long-term historical average.
The duo are also looking for high-quality companies with strong competitive advantages at attractive valuations. I like that the pair don’t want to overpay for a stock and they invest for the long term.
Performance
The LWDB share price is trading in line with the investment trust’s net asset value (NAV). This mean that I wouldn’t be paying a premium for the stock. It also has an attractive dividend yield of approximately 3.5%.
I’ve looked at the other investment trusts within the UK equity income sector and LWDB has delivered a strong performance versus its peers. Of course, there’s no guarantee this will continue. But it gives me some comfort that the fund managers have a good long-term track record. This is one of the reasons why I think the LWDB share price could climb further.
My view
I think LWDB offers a diversified way to gain exposure to UK stocks and get an attractive income. But there’s no certainty that the investment trust will continue to pay out its generous dividend.
I reckon the LWDB share price has risen as investors are on the hunt for income. Again, there’s no guarantee this trend will continue and it could impact the stock. Investors will also have to pay for the fund managers’ expertise with an ongoing charge of approximately 0.57%.
Despite these risks, as a long-term investor, I think LWDB is a UK equity income investment trust that has a good performance track record. I’d buy the shares.