The London stock market is home to a diverse mix of dividend shares. Thanks to years of underperformance, investors can grab a high dividend yield on a large number of them.
Broker forecasts aren’t always a reliable guide to future returns. But if City estimates are accurate, a £10,000 lump sum invested in THIS real estate investment trust (REIT) will provide £1,589 worth of dividends over the next two years (with next year’s dividends reinvested).
I think it’s worth serious consideration leading into the New Year. Here’s why.
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.
First, the bad news
Source: TradingView
Many property stocks like Primary Health Properties (LSE:PHP) have dropped in value in the second half of 2024. This reflects growing fears over the possibility of interest rates remaining higher than hoped.
In fact, this asset class has fallen sharply since the Bank of England started raising interest rates in late 2021.
Higher rates lower property valuations and push up borrowing costs. This has made REITs such as this a less appealing investment more recently.
Unfortunately, investor demand may remain weak, too, if the direction of recent inflationary data becomes a trend. News that November’s Ponsumer Price Inflation (CPI) reading was an eight-month high has tapered expectations of substantial Bank of England rate cutting in 2025.
Yet, despite the threat of further share price weakness, I’m still tempted to buy more Primary Health shares for my portfolio. This is thanks to its excellent dividend prospects.
Look at those dividends!
Source: Primary Health Properties
As the chart above shows, the FTSE 250 business has an impressive record of raising dividends dating back to the late 1990s.
This is down to multiple factors, including:
Its focus on the non-cyclical healthcare sector, providing stable earnings from year to year.
Inflation-linked rental contracts allow it to absorb rising costs, protecting profits growth.
The rents it receives are effectively guaranteed by government bodies like the NHS.
Occupancy is high and tenants are locked into long-term contracts.
Almost all (97%) of its debt is fixed or hedged, reducing the impact of rising interest rates.
The long record of profits growth this has provided has, in turn, meant Primary Health Properties has been able to consistently raised dividends.
Under REIT rules, the firm must pay at least 90% of annual rental earnings out to shareholders.
Bright future
City analysts expect earnings and dividends to keep rising throughout their three-year forecasts. And so the dividend yield on Primary Health shares stands at 7.6% and 7.7% for 2025 and 2026, respectively.
To put that in context, the average dividend yield on FTSE 100 shares sits way back at 3.6%.
I opened a position in Primary Health in 2022 to boost my passive income. And I plan to hold it for the long term. I believe it will deliver exceptional returns in the years ahead as Britain’s growing elderly population drives healthcare demand services through the roof.
In fact, I’m considering adding to my holdings in the New Year.
The post £10k to invest? A high-yield dividend share to consider for a £1,589 passive income in 2025 and 2026 appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
These are my top FTSE 250 REITs for earning passive income from dividends
What’s the first FTSE 250 stock I’ll buy in 2025?
These are the 3 top-yielding FTSE 250 stocks in my passive income portfolio
Here are the dividend forecasts for 2 passive income stocks to consider this December
2 high-yield dividend shares to consider for a BIG second income in 2025
Royston Wild has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Primary Health Properties Plc. 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.
