Income investing has taken a back seat in recent years as a cluster of US tech names that rarely pay dividends dominated headlines.

Higher-than-usual interest rates compounded the challenge, pulling cautious investors, typically drawn to reliable income strategies, toward bonds and even cash.

But as valuations of soaring artificial intelligence stocks start to look expensive and interest rates begin to ease, which investment trusts should investors be looking at to regain exposure to steady income?

Peel Hunt analysts Markuz Jaffe and Anthony Leatham highlighted five equity income trusts that they are backing for 2026.

Their top picks combine ‘compelling total returns with attractive yields, and often growing dividend streams, supported by robust fundamentals.’

Law Debenture (LWDB)

Law Debenture continues to be one of the best-performing trusts in the UK Equity Income sector, delivering a share price return of 73.7% over the past five years. This is well ahead of the average 25.4% increase made by its peers or 45.6% gain from the FTSE All-Share index.

It also produced one of the strongest dividend growth records in the space, with a 10-year dividend compound annual growth rate of approximately 7.9%.

The £1.3bn vehicle managed by Laura Foll and James Henderson makes full use of its investment trust structure by uniquely housing an Independent Professional Services (IPS) business alongside its equity portfolio.

‘The income generated from IPS enables LWDB’s investment portfolio to broaden its investible universe to include low-yielding, total-return investments and gain access to the best opportunities,’ explained Jaffe and Leatham.

They pointed to astute stock selection within this lower-yielding allocation in recent years, with Rolls-Royce, Marks & Spencer, Flutter Entertainment and Babcock among the biggest winners.

The value of the IPS business has more than doubled over the same period yet still trades on a ‘conservative multiple’ of 10.6x. Peel Hunt also highlighted the trust’s bias towards UK mid and small-caps as an area with potential for significant upside.

The trust currently yields 3.9%.

North American Income (NAIT)

Overseas, North American Income was first on the list. The £437m trust, managed by Fran Radano and Jeremiah Buckley, follows a quality growth strategy focused on predominantly S&P 500 US equities.

Jaffe and Leatham praised the depth of expertise across Janus Henderson’s team of analysts and sector specialists to focus on companies that are both innovating and delivering faster earnings growth than the broader US market. 

NAIT’s five-year share price return of 58.8% is in line with its Russell 1000 Value benchmark, which was up 57.2%, and peers in the North America sector, who climbed 57% on average. 

However, the trust has delivered a dividend compound annual growth rate of around 7% since 2014 – distributions funded largely by dividends from portfolio holdings, but enhanced through a covered call options strategy.

Jaffe and Leatham described dividend cover as ‘robust’, with over one year’s worth of dividends held in revenue reserves. 

‘NAIT offers a differentiated way to access North American equities, combining dependable income, disciplined active management, and long-term growth potential. The style profile of this strategy is more quality/value, which offers a counterpoint to the predominantly growth style of the US market and other US equity funds/trusts,’ they said.

Japan Income & Growth (CCJI)

The Peel Hunt duo also highlighted CCJI for Japan’s cheap equity market, which trades on a price-to-earnings ratio of about 17.7x compared to 21.7x for the MSCI World index.

The £325m trust managed by Richard Aston since its launch in 2015 has seen its share price rise 70.7% over the past five years, beating the TOPIX’s 29.9% increase.

Since listing, CCJI has delivered a dividend compound annual growth rate of 7.8% and currently yields 2.3% - slightly above the index.

Jaffe and Leatham said: ‘We see continued policy support and ongoing improvement in both capital allocation and balance sheet efficiencies in corporate Japan. We continue to see re-rating potential for those companies showing strong alignment with these corporate governance changes.’

They added that as at end of September, 58% of companies in the TOPIX had net cash that was significantly higher than other developed market indices, making it a particularly attractive pool for income investors. 

Aberdeen Asian Income (AAIF)

2025 was a year of change for Aberdeen Asian Income. In January, the board of the £398m Asia Pacific trust announced an increase of its dividend target to 6.25%, alongside the introduction of a triennial continuation vote.  

News of leadership change followed in March, with Isaac Thong appointed as manager.

AAIF’s share price is up 19.6% over five years, ahead of both the MSCI AC Asia Pacific ex-Japan benchmark’s 7.2% gain and peer group’s 4.1% average. 

The manager used market volatility to buy quality stocks at cheaper valuations, with 2025 seeing over 16 positions initiated and over 20 exited.

In 2024, the trust reported strong dividend growth of 22.8%, which helped support a five-year dividend compound annual growth rate of 9.3%. AAIF has a 16-year track record of consecutive year-on-year dividend growth. 

Jaffe and Leatham said: ‘We note that following the recent changes, the shape of AAIF’s portfolio has evolved under the company’s increased focus on total returns (e.g. reducing underweight to Chinese internet stocks), with future dividends supported by the recently introduced enhanced dividend policy, and new lead portfolio manager Isaac Thong, working alongside Eric Chan.

‘We believe the combination of attractive total returns, a yield premium, and the disciplined focus on quality, dividends, valuation, and growth, places AAIF in a strong position to continue its outperformance.’ 

BlackRock Frontiers (BRFI) 

Finally, Jaffe and Leatham spotlighted BRFI as a  ‘valuable complement’ to broader emerging market holdings in a diversified equity portfolio, as well as differentiated source of equity income.

The £345m vehicle managed by Sam Vecht and Emily Fletcher has returned 56.9% over five years, outperforming the MSCI Emerging Markets index’s 9% gain but narrowly beating the Global Emerging Markets sector’s average 55.5% increase.

‘Frontier market equities have the hallmarks that favour an actively-managed approach,’ the analysts said. ‘They are complex (with over 20 currencies and c.3,800 stocks trading at over US$5m per day), can fall out of favour, which leads to mispricings, and the dispersion is high.’

They stressed the time invested in travelling to and meeting companies in frontier regions by BlackRock as a ‘key differentiator’.

BRFI is not an income strategy but does offer an attractive yield on the share price of 4%. 

Jaffe and Leatham noted BRFI’s frontier market benchmark is trading at the widest PE discount (-41%) to the MSCI ACWI index in at least the last seven years. 

‘In our view, the BRFI portfolio is cheap (c.9x forward PE), and this becomes a double discount when factoring in the PE discount of the benchmark index trading on c.13x PE versus the MSCI World on c.23x,’ they said. 

‘We believe BRFI encapsulates what investors should look for in an equity investment trust: experienced and risk-aware managers who consistently outperform, a strategy and an asset class that allow the managers to make dull use of the closed-end structure, active use of gearing, and an attractive and growing dividend.’