A recession can lead companies to cut dividends. That might happen to investment trusts, too. But one thing I like about owning shares of investment trusts is that they can offer me exposure to a wide range of underlying businesses in which they have stakes. At the moment, a couple of investment trusts with dividends over 5% have caught my eye as possible purchases for my portfolio.
JPMorgan China Growth & Income
While many western economies like the UK are expecting a recession or are already in one, I think the long-term growth drivers for Asia remain strong. I would consider buying shares in JPMorgan China Growth & Income (LSE: JCGI) for my portfolio.
At the moment the dividend yield is 5.5%. I also think the long-term growth prospects are appealing. The trust’s shares have lost 40% of their value in the past year. That reflects investor concerns about overheating in sections of the Chinese economy and the impact of ongoing pandemic restrictions. But the shares have shot up almost 30% in the past month – and I think there could be more gains to come. The Chinese economy remains in growth mode and some companies are well-positioned to grow their footprint globally as overseas competitors struggle.
Last month, the trust chairman noted that “in the short term, sentiment towards investing in China may well remain negative”. That looks like a buying opportunity for my portfolio, as prices have been depressed while the long-term growth story remains strong.
European Assets Trust
Another area that may not suffer from a UK recession too much is Continental Europe. Of course, Europe has its own economic challenges and some large European economies are already in recession. But others are not, and I think the region also benefits from resilient industrial demand in countries like Germany.
Germany is a key focus for the European Assets Trust (LSE: EAT), which specialises in small and medium enterprises. While a recession could eat into profits and limit the growth of such companies, it might also lead to fewer competitors surviving in the marketplace. That could create new growth opportunities I think European Assets Trust could benefit from.
The dividend yield is 9.0%, which I regard as very attractive. Does that high yield suggest investors are pencilling in a dividend cut? It may do. The trust has a dividend policy targeting a payout based on its net asset value at the end of the year. The share price is down 34% so far in 2022 (and 30% over the past 12 months), so a dividend cut could come next year if the net asset value remains depressed.
That might still leave a decent dividend yield, though. I also like the chance of exposure to a range of growth stories in a variety of European economies. So I would consider buying these shares for my portfolio.
Two investment trusts with dividends I’d buy
Both of these shares offer me dividends. They also offer me the prospect of long-term growth. Like dividends, capital growth is never guaranteed; I might lose money instead. But as a long-term investor, I think the prospects for China and Europe in the medium term are promising.
These two investment trusts with dividends offer me exposure to that. I would consider buying both for my portfolio.
The post 2 investment trusts with dividends of 5%+ I’d buy before a recession appeared first on The Motley Fool UK.
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Christopher Ruane 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.
