With an 8%+ yield, is this investment trust for me?

view original post

I have been looking for shares with attractive dividends that I could add to my portfolio. One in question is an investment trust with yield that certainly appeals to me. I like its focus on European economies, which I think continue to offer long-term growth potential.

The share in question is European Assets Trust (LSE: EAT). It invests in small and medium-sized listed companies across Continental Europe. The largest countries in the trust’s portfolio by size of holding are Germany, Sweden and Norway.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Dividend outlook

Currently its dividend yield is a sizeable 8.6%. And it makes quarterly payments to shareholders, which appeals to me as I like the idea of income that comes in so frequently. It has also raised its dividend annually in recent years and the latest quarterly payout is 10% larger than last year. That double-digit rise is another plus for me.

Where will it go from here? The trust does not explicitly seek to raise dividends. Rather, the aim is for payouts equal to 6% of the per-share net asset value at the end of the previous year. That 6% is still appealing to me. But it does mean that the future dividend could well fall compared to the current level. After all, from the start of 2022 to the end of April (the most recently reported figure), net asset value fell by 21%.

What happens next will depend on how its investments perform. Its exposure to smaller companies with strong growth opportunities could continue to see performance struggle given the wider context of European economic slowdown. Indeed, the fund manager noted in a newsletter last month that “while growth stocks remain out of favour, the portfolio will continue to struggle relatively”.

If net asset value falls across the calendar year as a whole, I would expect to see a smaller dividend next year. It is also possible, however, that the trust’s active management could help it pick winners even if European stock markets overall end 2022 in retreat. So another dividend increase is possible, if the net asset value increases by the end of December.

Should I buy this investment trust?

European Assets Trust shares have fallen 29% over the past year.

That price fall reflects some of the risks I see in the trust. Many European economies have slowed down, with recessions looming in countries including economic powerhouse Germany. Along with cost inflation eating into profits, that could hurt many European companies. The European Assets share price could keep falling along with them.

However, the longer term picture looks more positive in my view. The trust’s diverse range of investments across industries and countries may help it benefit when the economy starts to do better. That could help the share price. Meanwhile, although dividends are never guaranteed, hopefully earnings from its investments will help it keep them flowing.

So, in sum, the European Assets Trust offers me exposure to a diversified range of companies. I remain positive about the long-term outlook for European economies and I also find the trust’s dividend attractive. I would consider adding it to my portfolio.