2 dividend investment trusts with yields that beat the FTSE 100

According to the latest Dividend Dashboard from AJ Bell, in 2018 the FTSE 100 is set to deliver a cracking 4.3% average dividend yield. And that means just sticking your investment cash into an index tracker and then enjoying your free time should be a very good strategy.

But if it’s bigger dividends you’re after, you should be able to beat the FTSE — and using investment trusts, which can even out income as dividends over the longer term, is an approach I’ve always liked.

If you also want a position in the UK’s booming commercial property sector but don’t have enough cash to buy your own factory or shopping centre, a real estate investment trust (REIT) is, in my opinion, the best option there is.

Retail property growth

I like the look of NewRiver REIT (LSE: NRR), and I was pleased to see its shares put on 5.5% this morning, to 316p, after the company gave us a third-quarter update.

NewRiver invests in shopping centres, retail parks, high street properties and leisure facilities, and chairman Paul Roy told us its portfolio is “performing well and significantly outperforming the wider UK retail market.”

Occupancy rates of a record 97% were impressive, and the company’s focus on affordable rents (with an average retail rent of £12.70 per square foot) should help it keep up its growth. The discount retail sector is apparently expected to grow by 36% over the next five years.

Footfall in the quarter rose by 0.5% over the same period last year, and December’s footfall gained 1.9%. The latter was ahead of the UK benchmark, and supports suggestions that shoppers are being more careful with their pennies these days.

This all brings us to what I see as NewRiver’s big attraction, which is its dividend. As earnings have been growing strongly since 2014, so have the dividends been boosted. The year to March 2018 is forecast to provide a yield of 6.6%, with rises to 7% by 2020 on the cards.

And if that’s not a good enough reason to buy the shares, I don’t know what is.

Another favourite

I’ve had my eye on Intu Properties for a while, and it was with mixed feelings that I learned of an agreed all-share offer from Hammerson (LSE: HMSO) to merge the entire share capital. Intu, after all, was set to deliver a full-year dividend of 6%, with more of the same forecast for the next two years.

But thinking more about it, I see the two as a good match, bringing together a portfolio of retail and leisure properties with a value of around £21bn. The combined reach encompasses the UK and European markets, and the enlarged Hammerson will be a key player.

The Hammerson share price has pretty much stagnated over the past five years, standing at 500p today for a mere 5% rise.

But earnings have been growing over that period, and dividends have been rising steadily. From a 19.1p per share payout in 2013 which yielded 3.8%, the year ended 31 December 2017 is expected to provide 25.5p for a 4.9% yield, with boosts to 5.4% by 2019 currently being suggested.

This will all change when the merger progresses, and new forecasts will reflect the totality of the existing two businesses. But with Intu’s dividend prospects looking slightly better than Hammerson’s, I don’t expect any significant change in the forecast yield for the combined operation.

Time to buy

With the property market depressed by Brexit fears, I see a good time to buy NewRiver or Hammerson as part of a long-term dividend portfolio. But what other dividend payers can you add for diversification?

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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