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New research shows more investment companies are paying dividends and paying them more often.

Another month, another announcement from the Bank of England’s Monetary Policy Committee that there will be no change in interest rates. And while economists are trying to get excited about the fact that the vote for the status quo in June was six MPC members to three, against May’s seven to two majority, a sustained period of interest rate rises looks as far away as ever.

For those dependent on their savings and income, the last 10 years have been a lost decade; and what once seemed like an extraordinary monetary policy environment has come to feel almost normal. Yield has been in short supply.

Enter the investment company sector, which has done its best to step into the breach. New research from analyst Winterflood Securities shows that more investment companies than ever before now pay an income to shareholders – and many pay more than in the past and do so more often.

Today, some 82 per cent of investment companies make income distributions to their investors, up from 69 per cent five years ago according to Winterflood. The number of funds offering a yield of more than 5 per cent has doubled from around one in 10 to one in five. And this year at least half of all investment companies will pay dividends on a quarterly basis or more frequently. That’s up from less than a fifth just a few years ago.

In part, of course, this is opportunism. Investment company boards recognise that an overt appeal to yield-starved income seekers offers a means to boost demand for their shares, enabling funds to stay on top of the discount to the value of the underlying assets that their stock tends to trade at when demand is lacklustre.

Nevertheless, the investment company industry now represents something of an oasis in the income desert. In particular, it offers a choice of asset classes through funds that still manage to make dividend payments even where their portfolios generate little or no income.

This is important. Investors looking for income beyond what is available from cash savings have traditionally had to consider fixed-income instruments or equities offering higher yields. Those assets are available within investment companies – indeed, equity-invested funds account for half the industry – but there are plenty of other options too.

Some of those options are asset classes where the income profile is obvious. Funds investing in assets such as infrastructure, debt and property, for example, get the benefit of a regular income stream. But in other cases – private equity is a notable example – the underlying asset class has traditionally offered very little in the way of dividends.

Investment companies are able to pay an income on such portfolios because the rules allow them to fund dividend payments from capital. No other collective investment vehicle has this capability. It means that an investment company such as International Biotechnology, for example, is still able to offer income despite its portfolio largely consisting of biotech companies not yet at a stage where they are making distributions to shareholders. In its case, International Biotechnology began paying dividends from capital last year.

Winterflood’s research is timely given the MPC’s latest pronouncement. It carries an important message for advisers and investors considering their income options: the investment company universe now makes it possible to build a balanced portfolio of investments, achieving both equity and non-equity exposure, that offers good levels of yield.