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Beyond dividends: how bonds can help support portfolio income

The previous article, What successful dividend growers have in common , explored how growing income streams can play an important role in long-term investment returns. While dividend growth remains an important consideration, we believe you do not need to rely solely on shares to generate portfolio income.

While dividend growth remains an important consideration, we believe income investors do not need to rely solely on shares to generate portfolio income, and that bonds can provide an additional source of income while helping to broaden the range of opportunities available to investors.

Different sources of portfolio income

Equities can provide dividend income and the potential for dividend growth and capital appreciation.

Bonds work differently. When investors buy a bond, they are effectively lending money to a company, bank or government entity in exchange for a series of set interest payments, known as coupons, and the return of capital when the bond matures.

Because shares and bonds generate income in different ways, combining them can help diversify a portfolio’s income sources. Dividends are influenced by company earnings and management decisions, while bond coupons are typically defined in advance. This can create a broader and more balanced source of potential income than relying solely on dividends from a particular group of companies.

For an income-focused portfolio, this wider opportunity set can be particularly valuable during periods when economic conditions are more challenging for companies and their cash flows.

Why bonds support both income and diversification

Bonds can play more than one role within an income portfolio.

In HHI’s case, the trust uses long-term borrowing, known as gearing, to invest in bonds issued by large companies. Unlike many open-ended funds, investment trusts can borrow money to invest alongside shareholders’ capital. While this can increase both gains and losses, it can also provide opportunities to enhance returns and income over the long term.

Historically, the income generated by the trust’s bond holdings has been higher than the cost of that borrowing, helping to boost the trust’s overall income.

This has an additional benefit. Because part of the portfolio’s income comes from bonds, there is less need to rely solely on the highest-yielding shares to meet income objectives. This creates greater flexibility to invest in companies that may offer lower yields today but stronger prospects for dividend and capital growth over time.

Bonds can also play an important role in helping to reduce overall portfolio volatility. Share prices can sometimes move sharply in response to changes in economic conditions, company earnings or investor sentiment. Bonds are influenced by different factors and can behave differently during periods of market stress.

As a result, combining bonds with equities can help create a more balanced portfolio than one invested entirely in shares. Alongside providing an additional source of income, bonds can help make that income stream more resilient as companies have to pay their coupons to bond holders before their dividend to shareholders.

Bringing it all together

Across this series, several themes have emerged: why the highest dividend yield isn’t always the best investment, how dividend sustainability can be assessed, the power of dividend growth to investors, and how bonds can provide an additional source of portfolio income.

While each topic focuses on a different aspect of income investing, they all point towards the same conclusion. Successful income investing is not simply about maximising today’s income. It involves balancing income generation with diversification and detailed research into the factors that support a company’s ability to sustain and grow its dividend over the long term.

Henderson High Income Trust invests in a diversified portfolio of equities and bonds, with a focus on delivering a high level of income together with the potential for capital growth. Learn more about the trust and its portfolio on the HHI website.

Discrete year performance (%) Share price (total return) NAV (total return)
30/9/2025 to 30/9/2026 18.8 14.1
30/9/2024 to 30/9/2025 15.0 14.7
30/9/2023 to 30/9/2024 11.2 17.0
30/9/2022 to 30/9/2023 18.4 15.8
30/9/2021 to 30/9/2022 -6.1 -6.5

All performance, cumulative growth and annual growth data is sourced from Morningstar.

Source: at 30/09/26. © 2026 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance does not predict future returns.

Key terms defined

Bond

A debt security issued by a company or a government used as a way of raising money. The investor buying the bond is effectively lending money to the issuer of the bond. Bonds offer a return to investors in the form of fixed-periodic payments (a coupon), and the eventual return at maturity of the original amount invested—the par value. Because of their fixed-periodic interest payments, they are also often called fixed-income instruments.

Coupon

A regular interest payment that is paid on a bond described as a percentage of the face value of an investment. For example, if a bond has a face value of £100 and a 5% annual coupon, the bond will pay £5 a year in interest.

Diversification

A way of spreading risk by mixing different types of assets or asset classes in a portfolio on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.

Dividend

A variable discretionary payment made by a company to its shareholders.

Equity

A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bond. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.

Gearing

Gearing is a measure of a company’s debt relative to its equity, showing how far its operations are funded by lenders versus shareholders. For investment trusts: The effect of borrowing money for investment purposes (financial gearing). The amount a company can ‘gear’ is the amount it can borrow in order to invest.

Interest rates

The amount charged for borrowing money, shown as a percentage of the amount owed. Base interest rates (the Bank Rate) are generally set by central banks, such as the Federal Reserve in the US or Bank of England in the UK, and influence the interest rates that lenders charge to access their own lending or saving.

Portfolio

A grouping of financial assets such as equities, bonds, commodities, properties, or cash. Also often called a ‘fund’.

Share price

The price to purchase (or sell) one share in a company, not including fees or taxes. For investment trusts: The closing mid-market share price at month end.

Volatility

The rate and extent at which the price of a portfolio, security, or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility, the higher the risk of the investment.

Yield

The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, in its simplest form, this is calculated as the coupon payment divided by the current bond price.

Important information

Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

There is no guarantee that past trends will continue, or forecasts will be realised.

 

Marketing Communication.

 

Glossary

 

 

 

Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • Some of the administrative expenses are taken from capital. This allows more income to be paid but it may also restrict capital growth or even reduce the capital over time.
  • Derivatives may be used with the aim of reducing risk or managing the portfolio more efficiently. However, this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • Losses could be incurred if a counterparty became unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk (as well as the potential for greater reward) than a portfolio that is diversified across more countries.
  • This investment should be held as part of a broader diversified portfolio. Balancing it with investments that have different risk profiles can help reduce the impact of any single investment underperforming.
  • The Company may borrow to invest, which could magnify gains or losses.
  • As the Company may borrow to invest, changes in interest rates could increase or decrease the cost of any borrowings.
  • The Company invests in debt securities, exposing the portfolio to credit risk. This means that the issuer of a bond which may be held in the portfolio, could become unable or unwilling to pay interest or repay capital. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Company invests in the shares of other companies. These shares may become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • Your return on investment is directly related to the market price of the Company's shares, which may be higher (trading at a premium) or lower (trading at a discount) than the value of its underlying net asset value assets. This means your returns may differ from the performance of those assets.
  • While active management techniques are typically positive for performance, this approach may also result in periods of underperformance relative to the benchmark and comparable passive and index-tracking funds, particularly during unexpected market shifts.
  • Shares can gain and lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may rise and fall in line with the underlying equity markets.
  • If the companies in which the portfolio is invested persistently reduce their dividend payments, the Company will find it more difficult to maintain or grow its own dividend payments each year.
  • The Company maintains a portfolio with a bias towards income-generating companies. This may result in the Company significantly underperforming or outperforming the wider market.

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