The number of listed investment companies (LICs) has grown dramatically over the last 5 years or so. A number of them charge extortionate fees, often for the privilege of mediocre results.
The best place to start when looking at these vehicles, is with the oldest investment companies. Quite often, they will be the most conservatively managed, have the lowest costs, and will have been through many, many market cycles.
Here are two LICs which get much less attention, yet have delivered an impressive income stream for shareholders:
Diversified United Investment Limited (ASX: DUI)
Founded in 1991, DUI holds a portfolio of shares for their current income and potential for capital growth over time.
The company holds shares in many large companies including CSL Limited (ASX: CSL) and Commonwealth Bank of Australia (ASX: CBA). It also invests in international ETFs which make up around 15% of the portfolio.
DUI is run at rock-bottom costs of 0.15% per annum, which includes the fees for the ETFs it holds. And its dividend history is nothing short of incredible. Since 1992, dividends have either been stable or increased every year.
In fact, DUI has been able to grow its dividend by 6.6% per annum over the last 25 years. Shares currently trade at a discount to NTA, and a gross dividend yield of 5%, including franking credits.
Australian United Investment Limited (ASX: AUI)
Managed by the same investment team as DUI, this company was founded in 1953 by Sir Ian Potter. Today, the Ian Potter Foundation Ltd is the largest shareholder of both AUI and DUI, and it’s clear that income stability is a key focus for each company.
AUI holds a portfolio of 40-50 shares on the ASX which it deems to have good prospects for income and growth over the medium to long term. The company is run at an ultra-low-cost 0.10% per annum, which is about as cheap as it gets.
AUI’s dividend history is also impressive. Since 1992, dividends have either been stable or increased every year. The company has grown its dividend by an average of 6.4% per annum.
Shares currently trade at a discount to NTA of over 5%, and a gross dividend yield of 6%, including franking credits.
It’s my view that LICs like this are perfect for people wanting to live on a stable and increasing stream of dividends. You simply won’t get this level of income stability with an index fund. This can make all the difference when the markets head south, because reliable dividends often mean more to the retiree than chasing high returns.
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Motley Fool contributor Dave Gow owns shares of Australian United Investment Co. Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.