When it comes to investment trusts for passive income, it’s hard to look past the ‘Dividend Heroes’. These are trusts that have consistently increased their dividends 20 or more years in a row.
Here, I’m going to highlight two of my favourite Dividend Heroes. If I was looking to generate passive income from the stock market today, I would definitely consider these two investment trusts for my portfolio.
Scottish American Investment Company
Let’s start with Baillie Gifford’s Scottish American Investment Company (LSE: SAIN). This is a global product that aims to be a ‘core investment’ for private investors seeking income. It predominantly invests in equities but also allocates capital to bonds, property, and other asset classes.
One thing I like about this particular Dividend Hero is that its portfolio is highly diversified. At the end of January, over 45% of the portfolio was allocated to European and Asian stocks. These two areas of the market are often neglected by UK investors.
I also like the kind of stocks this trust holds. At 31 January, the top 10 holdings included Big Tech giant Microsoft, healthcare specialist Novo Nordisk, and consumer goods powerhouse PepsiCo. These are world-class companies.
Now, the dividend yield here isn’t that high. Currently, it’s only about 2.4%. However, I’m not too fussed about this as the trust has a great track record when it comes to delivering high total returns (capital gains plus dividends). For the five years to the end of 2021, for example, its share price rose 93%. This means that total returns over that period were more than 15% per year.
It’s also worth noting that the trust has now registered 47 consecutive dividend increases.
Of course, past returns are not an indicator of future performance. There’s no guarantee this trust will provide good returns going forward. However, I see it as a great pick for passive income as part of a balanced investment portfolio. Ongoing charges are 0.70% per year.
Murray Income Trust
Another of my favourite Dividend Heroes is Murray Income Trust (LSE: MUT). This trust, which is managed by Abrdn and has now posted 48 consecutive dividend increases, aims to provide high and growing income along with some capital growth. It mainly invests in UK shares but has a little bit of exposure to international stocks. Top holdings at the end of January included Diageo, AstraZeneca, and RELX.
This trust also has a pretty good track record when it comes to performance. For the five years to the end of 2021, for example, it generated a share price return of 57%. That’s a solid return for a UK-equity product. By contrast, the FTSE All-Share index delivered a return of just 30% over that period.
As for the dividend payout, this is very appealing, in my view. Last year, MUT paid out income of 34.5p per share. At the current share price, that equates to a yield of about 4.1%. I’d be happy with that yield if my goal was to generate passive income. Dividends are paid quarterly too, which is handy.
It’s worth pointing out that dividends from investment trusts are never guaranteed. If the stocks owned by MUT reduced their dividends, the trust may have to reduce its payout too.
I’m comfortable with this risk though. Overall, I see MUT as a very solid product for passive income. Ongoing charges are 0.46% per year.