Stock market

The best way to put £500 into dividend stocks right now

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with the FTSE 100 Currently trading near all-time highs, dividend stocks may soon see their yields decline. This is because the dividend yield is not set by the company but is a ratio of how much the company is paying out compared to the share price. As the price rises, the stock is worth more but the dividend stays the same, so the yield is a smaller percentage of the price.

However, there are still some opportunities to make decent profits when the market picks up. I think trusts are the best way to invest, as they are more stable in a volatile market.

Reliable > Big

A host of high-yield dividend stocks are easy to find. A quick search will bring up similar companies. Vodafone, Imperial BrandsAnd BT Group. But high productivity does not necessarily equate to excellent profits. Vodafone recently cut its profits in months following falling prices. And tobacco companies often increase their profits to attract investment because some people see the industry as risky.

I prefer to go with stocks that have a proven track record of increasing returns year after year. A good place to look for them is on the Association of Investment Companies’ list of ‘Dividend Heroes’. This list includes several notable investment trusts, including one I plan to buy this month. Murray Income Trust (LSE: MUT).

Versatile and reliable

With a yield of just 4.3%, Murray Income Trust may not initially look attractive to dividend hunters. But the trust has grown its dividend for 50 consecutive years, so it’s definitely earned the word ‘trust’ in my eyes. The current dividend per share is 37p and earnings per share are 76p, so payouts are well covered with a ratio of 56%.

I also find that it is extremely versatile, allowing business analytics exposure (RELXpharmaceutical (Astra Zeneca), consumer goods (Diageo, Unileverand energy (B.P, Total energy).

It also includes finance related companies. Sage, London Stock Exchange Group, experienced, And Intermediate Capital Group. The full list I find impressive and includes many companies in which I already own shares.

Fees and Risks

Like most trusts, the Murray Income Trust comes with some fees. It has a 0.5% annual charge and a 0.16% transaction cost. Naturally, this will slightly reduce the return on investment. Thus, experienced investors can realize higher returns by investing in stocks individually. It is certainly possible but it will require more portfolio management. I like the passive income aspect of trust investment trusts.

But with just 4.7% growth over five years, the trust’s share price performance has underperformed some others. For example, Alliance Trust 57 percent is more. JP Morgan American Investment Trust 112 percent more. However, these do not offer the same reliable dividend payments.

The stock is currently trading at 862p, a 9.32% discount to its net asset value (NAV) of 955p. The 12-month average is -8.5%. This indicates that the stock is cheaper than the share price it represents and may have good future growth potential.

Overall, I think Murray Income Trust is an excellent example of a dividend paying stock that I would pick for small but reliable returns.


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