8%+ yields! 2 investment trusts to target a £1,640 passive income this new ISA year
Investment trusts can be powerful weapons for investors targeting dividend income. These vehicles are often well diversified across assets and sectors, reducing the risk of dividend shocks. That’s not all — they also harness the wisdom of financial services professionals to target huge returns.
Stocks and Shares ISA investors have dozens of these to choose from today. And two I think deserve serious attention from dividend investors are Chelverton UK Dividend Trust (LSE:SDV) and Social Housing REIT (LSE:SOHO). With dividend yields above 8%, they could deliver more income than almost every other UK share for every pound that’s invested.
If broker forecasts are correct, a £20,000 ISA invested equally across them will deliver £1,640 in dividends this year alone. So just what makes them passive income powerhouses?
Best of British
Chelverton UK Dividend Trust, as its name implies, is laser-focused on the London stock market for income. It’s a winning strategy, given Britain’s strong culture when it comes to paying dividends. The facts back this up.
Annual dividends at Chelverton have risen consistently since the early 2010s. What’s more, the dividend yield for 2026 is an enormous 8.3%, more than double the FTSE 100 long-term average of 3%-4%.
There is some risk here, as the trust focuses on non-FTSE 100 companies. The medium-to-small-cap stocks it holds don’t always benefit from cash-rich balance sheets, diverse revenue streams and market-leading positions. So when economic and industry conditions worsen, dividends can, in theory, be more vulnerable to disruption.
Yet as Chelverton’s record shows, it has a great track record of navigating such turbulence. That’s thanks to the quality of its management, not to mention its large and diverse portfolio. The 68 shares it holds span a range of industries including financial services, insurance, consumer goods and healthcare. So even if one or two companies suffer severe difficulties, the investment trust can still deliver substantial returns.
A top REIT
Real estate investment trusts (REITs) are also hugely popular with passive income investors. Under sector rules, at least 90% of their annual rental earnings must be distributed in dividends. That’s in exchange for significant tax breaks.
But that’s only one reason why they’re in high demand. After all, this rule won’t guarantee a healthy income if profits sink. The other reason is that these property stocks often have tenants tied into long contracts. This helps deliver stable cash flows even during economic or industry-specific downturns.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Social Housing REIT offers another layer of protection for investors. As the name suggests, it focuses on the ultra-defensive residential property market. Everyone needs a roof over their heads, so tenant demand and rent collection remain stronger than any other property segment.
That’s not to say this investment trust doesn’t carry risk. If interest rates rise, the REIT’s asset values could come under pressure, pushing the share price lower. But I’d expect Social Housing to recover over time and, in the meantime, investors should continue enjoying huge dividends.
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Royston Wild 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.
