With this being the case, I think it’s best to leave the challenge of picking dividend stocks to the professionals. So today, I’m looking at my two favourite income investment trusts for 2019.

Income and growth

My first pick is the Lowland Investment Co (LSE: LWI). Managed by James Henderson and Laura Foll, this investment trust tries to pick equities across the spectrum. The managers (who have several decades of experience picking stocks between them) like small and mid-cap stocks for their growth potential, but also like large-cap stocks that produce a steady level of income.

Over the years this has proven to be a potent combination. The trust currently supports a dividend yield of 4.1% and over the past five years has churned out steady capital gains averaging around 2% per annum, although, like the rest of the market, the share price has suffered significantly in recent months. Over the past 12 months, the Lowland share price is down 11%, slightly more than its benchmark loss of 8.7%.

Still, I think in the long term this company should prove to be a winner particularly when you include reinvested dividends. At the time of writing, the shares are trading at a discount of around 0.6% to the net asset value (the five-year average is 2.9%), and the annual management charge is 0.57%, which is relatively modest.

If you are looking for income, it is worth keeping an eye on this trust in my opinion.

Overseas income

Lowland is a UK-focused investment trust, so its performance is tied to that of UK markets. In comparison, the Schroder Oriental Income Fund (LSE: SOI) can hunt for income around the world. 

According to the fund’s latest update, around 16% of its assets are invested in Hong Kong, 13% in China, 13% in Australia 11% in South Korea and the rest across other regions around the world. Only 6.2% of the fund’s net asset value is invested in UK equities.

Schroder Oriental was first launched in 2005, and since then it has proven itself as an income play. At the time of writing, shares in the trust support a dividend yield of 4.2%. Over the past 10 years, every £10,000 invested has grown into £39,000 with dividends reinvested, a compound annual return of 16.3% per annum for investors.

While past performance is no guide to the future, I think this trust can continue to produce at least mid-single-digit per annum returns for investors after including dividends for the foreseeable future. Economic growth across Asia is showing no signs of slowing down, and for UK investors, Schroder Oriental offers great diversification away from the uncertainty of Brexit.

Right now the firm is trading at a small premium to net asset value of 2.2% compared to the 12-month average of 0.1%. The ongoing annual management charge is 0.84% per annum, which I think is relatively modest considering the level of returns the trust has produced over the past decade.

No more hero

That said, Woodford’s fall from grace has been far sharper than I could ever have imagined. His eponymous flagship, LF Woodford Equity Income, enjoyed a rip-roaring first year after launch in June 2014, thrashing the market as the big man had nearly always done before, until things went wrong.

The fund is now down 13.6% measured over three years, while his benchmark UK All Companies index is up 11% over the same period. The last year has been tough for almost everybody, but particularly Woodford, whose fund is down 16.6% against a drop of 11.9% on his benchmark. This is a severe underperformance.

Boom and bust

Worse, he has make a string of horrible investment calls, backing high-profile company failures including Allied Minds, Capita and Provident Financial. His investment trust Patient Capital Trust has compounded the sense of failure, falling 21.9% over three years, against a rise of 9.4% for the average UK investment trust.

Woodford has never been short of confidence in his own abilities, so no doubt he’s sitting on the riverbank waiting for things to change, to use an old Chinese proverb. But his loyal army of investors aren’t as patient. LF Woodford Equity Income now holds less than £5bn, half the £10bn it managed at its zenith, while Patient Capital Trust is a £650m minnow.

Holding on

I invested in Woodford Equity Income shortly after launch, and continue to hold. I’ve had my reservations, though, as I explained last year. My big worry was that while Woodford has suffered periods of underperformance before, that was often through making heroic contrarian calls, such as shunning boom-bust tech and banking stocks. His recent troubles are down to poor stock picking, which is less heroic, I wrote.

Yet now investment trends could be swinging back in his favour. First, his fund is 91% invested in the UK, which has underperformed most global markets, especially the US (which has flattered performance at Terry Smith’s Fundsmith Equity, 65% invested in the States). Brexit continues to cast a shadow, but if that lifts, Woodford might gain some respite.

Turning around

Woodford has previously criticised negative perceptions about the UK economy, and if we get some kind of Brexit solution, his fund could fly again. His focus is on cheap domestic stocks, rather than the big FTSE 100 blue chips that have benefited from sterling weakness. It’s this sector that will benefit most if Brexit is sorted, the pound rises, inflation falls, and wages continue to increase. Woodford has called the market correctly before, only too soon. It came round in time.

So I’m giving him another year. Woodford has what it takes to bounce back. Also, investing is cyclical, and it’s his turn.