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