Global stock markets are rising again as investor confidence rebounds. The MSCI world index of shares has just put in its best weekly performance of 2024. But it’s still a great time to go shopping for high-yield dividend stocks.
Years of underperformance mean many stocks across the London Stock Exchange continue to offer juicy dividend yields. While we need to guard against potential investor traps, many of these shares look in good shape to pay large (and even growing) dividends over time.
One of my favourites can be seen in the table below. I’ve also included a high-yielding exchange-traded fund (ETF) that I’d like to buy to boost my passive income.
Dividend stock
Trailing dividend yield
Alternative Income REIT (LSE:AIRE)
8.3%
SPDR S&P Euro Dividend Aristocrats UCITS ETF (Dist) (LSE:EUDV)
4.3%
Both of these assets offers a yield far above the FTSE 100 forward average of 3.5%. If broker forecasts are accurate, a £16,000 lump sum invested equally across them would provide me with a second income of just over £1,000 this year alone.
Here’s why I’d buy them if I had spare cash to invest today.
Alternative Income REIT
Real estate investment trusts (REITs) can be ideal for a regular source of income. For starters, they’re property stocks, meaning they enjoy a steady flow of income through their rent collections.
Alternative Income REIT has its tenants locked down on long contracts too, providing it with added long-term stability. As of June, its weighted average unexpired lease term (or WAULT) stood at a hefty 16.4 years, to the earlier of break and expiry.
On top of this, REITs must pay out a minimum of 90% of profits from their rental operations in the form of dividends. This is in exchange for certain tax advantages (like not having to pay corporation tax).
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
On the downside, property companies can struggle to collect rents when times get tough. But of late, this particular REIT hasn’t had any problems on this front.
Collection remains strong thanks to its exposure to cyclical and non-cyclical sectors, and robust customer base (which includes FTSE 100 companies Whitbread and B&M). Indeed, the trust collected 100% of rents it was owed during the year to June.
SPDR S&P Euro Dividend Aristocrats UCITS ETF
By comparison, dividends at the SPDR S&P Euro Dividend Aristocrats UCITS ETF are more sensitive to broader economic conditions.
This fund provides exposure to 40 European heavyweight stocks. These include chemicals giant Solvay, financial services provider Generali and courier DHL. The trouble is a large number of its holdings operate in cyclical industries.
That’s not to say the companies it’s invested in have flaky dividend records. Far from it, in fact. As its name implies, it invests in Dividend Aristocrats, more specifically companies that have raised or held payouts for at least 10 consecutive years. This provides it with more solidity than many other income-focused funds.
This fund has delivered a decent average annualised return of 7.95% over the past decade. I think it could be a strong stock for investors building a dividend portfolio to consider buying.
The post A dividend stock and an ETF I’d buy to target a £1,000 passive income! appeared first on The Motley Fool UK.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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.
