Which funds offer the highest income?

Q: Regarding your dividend yield article, where you list the stocks sustainably yielding above 4.5% in dividends, are there funds which group such stocks together where you can invest to get a relatively reliable and sustainable dividend greater than 4.5%?

A: Equity income funds are a good place to start. These are funds where the managers are targeting a higher income than is delivered from a broader index fund, while also looking to deliver capital growth over the longer term.

Part of this stock selection will be looking at whether the stocks included within this portfolio have the potential to maintain these higher dividend payments, to deliver a sustainable income stream to investors. Of course, the important caveat here is that these yields (and capital growth) are not guaranteed and can be affected by broader economic conditions.

Many equity income funds pay between 3.5 and 4.5% though (so not above 4.5%). This is because they tend to invest in larger blue-chip firms, which have a good track record of paying solid dividends, while also delivering capital growth.

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You might also want to look at exchange traded funds (ETFs) that focus on sectors and stocks that have historically paid higher dividends. For example, the iShares UK Dividend ETF has consistently paid a dividend yield of between 5 and 6.5% over the past five years.¹ Please note this is not guaranteed.

If you are looking for a higher yield, you might want to look at bond funds. These can pay a higher income, but the opportunity for capital growth over the longer term may be more limited than with an equity portfolio. Much will depend on your own time horizon and investment goals.

Regardless of whether you’re looking at equities or bond funds, Fidelity’s Select 50 is a good place to start. This is a curated list of funds chosen by investment experts. When looking at the list of funds, it is possible to sort it so you can see the ones paying the highest yields. For example, the M&G Emerging Markets Bond Fund is currently yielding 7.87% (not guaranteed).

Another option worth exploring is investment companies (also known as investment trusts). Due to the way these are structured, they don’t have to pay out all the income they receive from their portfolio each year. This enables them to reserve funds, allowing them to continue to top up income payments to investors in leaner years.

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The Association of Investment Companies publishes a list of ‘dividend heroes’: investment companies that have paid a consistently rising dividend to investors, in some cases for more than 50 consecutive years. Many of these specifically invest in UK and global shares that pay high dividends to generate good income streams for investors.

For example, Merchants Trust, a UK equity income trust, currently pays a dividend of 5.3% and has increased the dividend it pays investors for the past 43 years.

Other investment companies that have a 15-year-plus track record of paying rising dividends include Aberdeen Equity Income Trust (currently yielding 6.3%), JPMorgan Claverhouse (4.55%), and Schroder Income Growth Fund (4.52%). City of London Investment Trust pays a slightly lower yield (currently 4.2%) but has increased its dividend for a staggering 59 years.

All the above are UK equity income funds, but you can also find even higher yields by looking at emerging market trusts. For example, the Aberdeen Asian Income Fund currently yields 6.69%, and has a 16-year long-term track record of paying rising dividends, but as an emerging market fund it may be deemed a slightly higher risk option.

Investment companies are closed-end structures, where investors buy shares in a company structure, rather than units in a fund. This can mean that the value of your shares may differ to the underlying value of the investment portfolio.

If you’ve got a burning question you want to ask, why not drop us a line? Ask us your question.

• Read: 4 popular trusts for income
• Read: Top 10 best-selling investment trusts in July
• Read: ‘Mr 4% rule’ identifies the key risk for pension investors

Source:

¹ Just ETF, 12 August 2025

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing, please read the relevant key information document which contains important information about each investment trust. Shares in investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.