Investment trusts aren’t usually top of mind when it comes to generating passive income. However, they can be a fantastic source of dividends as well as growth.
That’s because they often hold a basket of stocks, which provides income diversification, making their dividends more resilient (though not infallible).
With this in mind, here are two trusts I think are worth digging into. Each offers both growth and income potential.
FTSE 100
3i Group (LSE:III) sports a sizeable £22.4bn market-cap today. But it was even bigger a year ago, before the private equity firm’s stock crashed 50%.
This historic sell-off has been driven by slowing sales growth at crown jewel Action, the Dutch homewares and non-food retailer. As the largest portfolio holding by far, any further slowdown amid rising competition is a key risk.
However, I think 3i now looks very attractive after the 50% crash. For a start, Action’s hardly in trouble, as it recently entered its 15th country (Croatia) and has opened at least 69 further stores year to date.
Slovenia (16th) and Bulgaria (17th) markets are in sight, while trading in the Netherlands, Belgium and Southern Europe remains strong. It also plans to test the waters in the US by early 2028.
Long term, the firm’s aiming for 4,650 stores across Europe, up from 3,302 in December. And 3i CEO Simon Borrows thinks selling quality items at the lowest price during these tough economic times will see it take market share.
Indeed, he says Action displays “some of the best store economics we have seen in a retail concept“. So it’s noteworthy that Borrows has been putting his money where his mouth is recently by buying 3i shares on the dip.
Meanwhile, the rest of the portfolio’s performing well, particularly Royal Sanders (a personal care manufacturing company).
After the fall, the trust’s trading at a wide 23% discount to net asset value (NAV). Pairing this with an unusually high 4.3% forecast dividend yield, and ongoing £750m share buyback, I think the stock offers tremendous long-term value.
FTSE 250
Turning to Finsbury Growth & Income Trust (LSE:FGT), this FTSE 250 stock’s down 21% since January after being stung by the brutal software sell-off.
This does add risk because if key holdings like Sage, Experian and London Stock Exchange Group are going to be disrupted by AI, then Finsbury will likely carry on underperforming (as it has done for five years now).
However, manager Nick Train believes there’s currently a “once-in-a-decade opportunity to access exceptional growth assets at fundamentally the wrong price“. Looking at the actual businesses, he may well be right.
Take Sage, for example. Small- and medium-sized businesses trust its software to run mission-critical finance, payroll, and HR functions. Half-year revenue grew 11% to £1.36bn, and Sage is embedding more AI agents into its customers’ workflows.
By deploying AI across our business, we are reinforcing our growth, efficiency and the durability of our business model.
Sage.
As such, the trust’s doubling down on these software names, setting it up for a potentially strong rebound at some point.
Meanwhile, the shares trade at a 6.8% discount to NAV, and Finsbury has just upped the dividend by at least 50%. At the current share price, the forward yield’s decent, at 4%.
Should you invest £5,000 in 3i Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if 3i Group Plc made the list?
Ben McPoland owns shares in 3i Group and Sage.
