The advantages of reinvesting dividends from a total return point of view are well documented, but many investors hold a dividend-paying fund purely to achieve an income stream on a monthly, quarterly, biannual or annual basis.
Such investors would have been greatly rewarded by holding Paul Craig’s portfolio – a fund of investment trusts, with only £17.6m assets under management (AUM).
An initial £1,000 invested in the fund a decade ago, would have resulted in total dividend payments of £1,094.12 over the period – after the UK basic tax rate. The fund pays out a dividend quarterly.
Income-earnings of funds over 10yrs
Source: FE Analytics
The graph above is based only on income payments, meaning capital growth is completely disregarded.
Henderson UK Strategic Income targets a high level of income. Its one year-historic yield is currently at 4.2 per cent, but in the past it has been as high as 8 per cent.
Craig has run the portfolio since November 2003. It requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.68 per cent.
Top-10 income-paying funds over 10-yrs with initial £1,000 investment
| Name | Income paid (£) | Current yield (%) |
|---|---|---|
| Henderson UK Strategic Income | 1094.12 | 4.20 |
| Neptune Income | 915.94 | 3.89 |
| Newton Higher Income | 895.23 | 5.11 |
| Artemis Income | 798.53 | 4.19 |
| Stan Life UK Equity High Income | 788.94 | 4.02 |
| CF OLIM UK Equity | 763.38 | 3.98 |
| Schroder Income | 762.99 | 3.42 |
| Ignis UK Equity Income | 757.83 | 3.80 |
| Royal London UK Equity Income | 777.7 | 4.09 |
| Threadneedle UK Equity Income | 736.39 | 4.00 |
Source: FE Analytics
FE Alpha Manager Robin Geffen’s Neptune Income fund takes second spot. Those who put in an initial £1,000 a decade ago would have received a total of £915.94 in dividends by now.
The £1.1bn portfolio, which pays out its income to investors twice a year, is currently yielding 3.89 per cent.
Other high-profile names in the top-10 include Adrian Frost’s £4.7bn Artemis Income fund, which has lined investors’ pockets with £798.53 of cash, as well as Newton Higher Income and M&G Dividend.
Neil Woodford’s Invesco Perpetual Income portfolio just misses out on the top-10, with a figure of £735.11.
Six of the funds in the top-10 are top-quartile performers in their sector over the last decade in the total return stakes. The best of these is Artemis Income, which has delivered 209.64 per cent.
Performance of funds vs sector over 10-yrs
| Name | 3yr (%) | 5yr (%) | 10yr (%) |
|---|---|---|---|
| Artemis - Income | 38.18 | 40.15 | 209.64 |
| Schroder - Income | 33.72 | 52.21 | 195.07 |
| CF - OLIM UK | 46.61 | 45.66 | 194.74 |
| Threadneedle - UK Equity Income | 44.38 | 41.63 | 188.97 |
| Stan Life Inv - UK Equity High Income | 29.02 | 20.55 | 182.56 |
| Royal London - UK Equity Income | 49.48 | 46.02 | 178.00 |
| Neptune - Income | 28.62 | 26.70 | 171.41 |
| Henderson - UK Strategic Income | 35.96 | -1.09 | 167.51 |
| Newton - Higher Income | 25.16 | 24.26 | 152.34 |
| Ignis - UK Equity Income | 31.83 | 21.56 | 142.67 |
| IMA UK Equity Income | 36.43 | 30.04 | 153.43 |
Source: FE Analytics
On a consistent basis, the little-known CF Olim UK Equity fund has the best record. The five crown-rated fund, which is currently yielding just under 4 per cent, is the only one on the list that is a top-quartile performer over one, three, five and 10 years.
The fund has been managed by Angela Lascelles since 2002. It requires a minimum investment of £1,000 and has a TER of 1.5 per cent.
Some of the funds have been less successful in terms of total return, however. Henderson UK Strategic Income has just about outperformed its sector over the last decade, but it is one of the few UK Equity Income funds that has lost money over five years. This is thanks largely to a poor 2008 – our data shows it lost 54.01 per cent over the 12-month period.
Newton Higher Income and Ignis UK Equity Income have both fallen short of their sector over three, five and 10 years.
The Newton fund has recently had to bring down its yield from highs of 8 per cent, as it was encroaching too heavily on the capital growth. It is currently yielding 5.11 per cent.