Balancing growth and income for long-term returns

By James Yardley on 26 May 2026 in Income investing

Often it can feel as though investing is overly focused on growth. And not without reason – compounding capital remains one of the fastest ways to build wealth and outpace inflation over the long term. But there’s another side to compounding that often gets overlooked: reinvesting dividends. To do that, you need income.

The accumulation of consistent income can be a powerful thing. I’m not suggesting it should be the sole focus of a portfolio, but it absolutely deserves a place alongside growth. There are countless ways investors can generate income from a portfolio, whether through equity income strategies, bonds, REITs, multi-asset income funds or the so-called “dividend heroes” of the investment trust world.

The rise of the dividend heroes

One of the most natural places to look for reliable income is the Association of Investment Companies’ (AIC) annual dividend heroes list. Published earlier this year, the updated list highlights 20 investment trusts that have increased their annual dividends for at least 20 consecutive years.

The list itself is full of familiar Elite Rated names. The City of London Investment Trust has increased its dividend for an impressive 59 consecutive years, while The Global Smaller Companies Trust has managed 55 years. Elsewhere, Brunner Investment Trust sits on 54 years, Murray Income Trust on 52 years, and even growth-oriented names such as Scottish Mortgage Investment Trust have delivered 43 consecutive years of dividend increases. Schroder Income Growth and Murray International Trust also feature, with 30 and 21 years respectively*.

The next generation of dividend heroes

For long-term investors, however, perhaps the more interesting list is the AIC’s “next generation” of dividend heroes: trusts that have raised dividends for more than 10 years, but fewer than 20. These may represent the next cohort of long-term income compounders.

Several names already look close to graduating into the main dividend heroes category. Schroder Oriental Income currently sits on 19 years of consecutive dividend growth, while Aberdeen Asian Income Fund and Fidelity Special Values have each reached 16 years. TR Property and Fidelity European Trust follow closely behind at 15 years apiece*.

Why dividends matter over the long term

The attraction of dividends is straightforward. In the short term, income can help support spending needs or supplement earnings, particularly during periods when inflation and living costs remain elevated. But over the longer term, dividends become even more powerful when reinvested.

And for many investors, the appeal of income investing isn’t simply about living off the yield. A popular strategy is to withdraw a fixed percentage of a portfolio’s value each year, combining natural income with capital appreciation. It’s a balance between growth and stability: arguably the best of both worlds.

Funds for building portfolio income

Of course, investment trusts are only one avenue for generating income. Equity income funds, fixed income strategies, property and multi-asset portfolios can all play a role depending on your objectives and appetite for risk.

For investors seeking global equity income exposure, Aegon Global Equity Income is one option worth considering. The strategy focuses on companies paying well-covered dividends supported by strong free cash flow, healthy balance sheets and attractive returns on equity.

Those looking for a more diversified approach may prefer WS Keyridge Diversified Monthly Income. Yielding around 4.3%**, the fund blends a variety of income-generating assets including global equities, government and corporate bonds, as well as property exposure. Income generation sits firmly at the heart of the process, with diversification intended to smooth returns across market cycles.

Meanwhile, investors with a preference for more traditional fixed income may find IFSL Church House Investment Grade Fixed Interest appealing. The fund focuses on higher-quality credits and is managed without reference to a benchmark, instead prioritising the delivery of a steady, low-volatility quarterly income stream. That emphasis on capital preservation alongside dependable income has helped the strategy stand out within its peer group over the long term.

Balancing growth and income

Ultimately, income investing is not about choosing dividends instead of growth. The strongest portfolios often combine both. Reliable income streams can provide stability, support withdrawals and, when reinvested, become a powerful engine for compounding returns over time.

*Source: AIC, 19 May 2026
**Source: FE Analytics, 20 May 2026