I’m always on the hunt for high-yield dividend stocks that have the potential to boost my passive income long term.
However, I prefer to find ones on the London Stock Exchange (LSE) that might be undervalued. This is because I can then possibly benefit from the lucrative one-two phenomenon of a rising dividend and share price.
Here’s one FTSE 250 stock that has been on my buy list for some months, and which I finally intend to invest in soon.
A cheap infrastructure fund
BBGI Global Infrastructure (LSE: BBGI) is an investment trust that owns and operates 56 projects across the UK, North America, Australia, and Europe. These include schools, hospitals, fire stations, and toll roads. It collects income from these and pays a large portion of that to shareholders.
What I love here is that the firm’s contracted revenue comes from public-private partnerships. That is, from a public authority or government. Needless to say, this should make the income much safer than most other sources.
At the end of June, a very healthy 99.4% of the portfolio was operational.
Even better, these assets are available at a 6.4% discount to the net asset value per share. Historically speaking, this is rare, and this could offer long-term investors the opportunity to invest in high-quality assets at a discount.
Rate cut risks
This valuation anomaly is due to higher interest rats, which the infrastructure fund sector is highly sensitive to. Higher rates obviously make funding infrastructure projects much costlier as well as increasing the desirability of other income-paying assets beyond stocks.
Consequently, the share price is down around 23% over the last 18 months. A recovery here is predicated on interest rates coming down. And that obviously relies on falling inflation.
However, US and UK military aircraft have just started bombing more than a dozen sites used by the Iranian-backed Houthis in Yemen. Chaos in and around shipping lanes is the sort of thing that can send oil prices surging, and this could cause an uptick in UK consumer inflation and delay any rate cuts.
This is a risk to the BBGI share price, I feel, at least in the coming months. As a long-term investor, this doesn’t worry me that much, but it’s worth pointing out.
A grand a year in passive income
This year, BBGI is forecast to pay out 8.40p per share. Based the 12 January share price of 136p, the stock has a forward dividend yield of 6.2%.
Specifically, this means I’d need about 11,911 shares to aim for £1,000 in annual passive income. These shares would cost me approximately £16,200.
While no dividend is guaranteed, I’m reassured by the trust’s solid track record of reliable and rising income stretching back to 2012.
Plus, the dividends are fully cash covered and there is minimal debt to be concerned about in this higher-rate environment.
Due to the low-risk portfolio, I think this is an excellent stock for investors to consider. And I fully believe the share price will recover in time.
This is why I’m chomping at the bit to add it to my income portfolio in the weeks ahead.
The post I’d buy 11,911 shares of this LSE dividend stock for £1,000 a year in passive income appeared first on The Motley Fool UK.
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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
