Is The City of London Investment Trust the perfect beginner’s dividend stock?

Dividend investing tips

When it comes to building a long-term share portfolio, starting out is often the hardest part. Novice investors wonder how much capital they’ll need and what they should invest in. Will a couple of securities provide enough diversification?

One idea for those starting out, could be to invest in The City of London Investment Trust (LON:CTY) (CTY.L).

While CTY trades like a regular stock on the London Stock Exchange, it’s actually an ‘investment trust’ as opposed to a regular company, meaning that it pools together money from many investors and invests in a portfolio of securities. The trust currently holds 116 stocks, thus providing shareholders with strong diversification benefits.

Fantastic dividend growth history

The City of London Investment Trust’s objective is to provide long-term capital and income growth, and places a strong emphasis on rewarding shareholders with regular dividend payouts, which are currently paid out on a quarterly basis.

The trust has a fantastic dividend growth history and has increased its dividend every year for over 50 years now. Growth over the last five years has averaged just under 4%, which while not a high level of growth, is in excess of inflation.

Shareholders received 15.9p per share in dividends last year, which at the current share price equates to a trailing yield of 3.7%.

Blue chip holdings

The trust is managed by portfolio manager Job Curtis, who takes a cautious approach to investing and mainly sticks to blue chip FTSE 100 holdings. As of 31st May 2017, the top 10 holdings were:

British American Tobacco (5.0%)
Royal Dutch Shell (4.5%)
HSBC (4.0%)
Diageo (2.9%)
Vodafone Group (2.8%)
Unilever (2.7%)
Lloyds Banking Group (2.6%)
Prudential (2.5%)
BP (2.5%)
GlaxoSmithKline (2.5%)

However, the portfolio manager is allowed to invest in smaller FTSE 350 companies, meaning that the trust can capitalise on growth opportunities when they arise.

While The City of London Investment Trust trust does have a fee, at just 0.365% per annum the fee is incredibly low, and in my opinion a small price to pay for gaining strong diversification benefits.

Average in

The trust has weathered many economic events over the years and I see no reason why it won’t continue to do so going forward. However investors should note that as a diversified portfolio, the share price will rise and fall with the market. A good strategy in my view might be to ‘average in’ on the dips, when markets pull back every now and then.

For more information on The City of London Investment Trust, see the Janus Henderson website here. 

Disclosure: Edward Sheldon, CFA owns shares in The City of London Investment Trust.

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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