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Dividends are never, ever guaranteed. But investors can reduce the risk of payout shocks to their passive income by buying a diversified range of dividend shares.
Buying shares with stong earnings visibility and robust balance sheets can also deliver a strong (and rising) dividend income over time. With this in mind, here are two top dividend shares for investors to consider.
A £20,000 lump sum invested equally across them could — if broker forecasts are correct — provide a £1,600 passive income this calendar year alone.
Remember, however, that this is just an illustration, and that having a diversified portfolio of stocks is important to mitigate risk.
Primary Health Properties
Dividend yield: 7.5%
In return for exclusions on corporation tax, real estate investment trusts (REITs) pay at least 90% of their rental profits out in dividends.
This doesn’t guarantee a decent dividend every year. But unless a catastrophe comes along, it means investors can expect a reliable passive income.
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.
UK share pickers have around 50 to choose from today. Primary Health Properties (LSE:PHP) is one of my favourites because of its focus on the rock-solid medical property sector.
Whatever economic or political crises may come along, our demand for healthcare services remains largely undimmed. So Primary Health — which specialises in ‘first-contact’ medical facilities like GP surgeries, dentists, and NHS walk-in centres — remains stable every year.
What’s more, around 90% of the company’s rent roll is either directly or indirectly backed by government bodies, providing an added boost to profits visibility.
These qualities provide Primary Health with the financial resources and the confidence to provide a large and growing dividend every year. Indeed, City analysts are expecting the annual payout to have risen again in 2024, representing a remarkable 28th straight year of growth.
In the near term, this property stock’s share price may remain under pressure if interest rates fail to fall substantially from current levels. Higher rates adversely impact borrowing costs and depress net asset values (NAVs), weighing on overall profitability.
But on a long-term basis, I expect it to rise in value as demographic changes increase demand for new healthcare facilities, providing an opportunity for growth.
Care REIT
Dividend yield: 8.5%
Like Primary Health, Care REIT (LSE:CRT) has terrific growth potential in the coming decades. As Britain’s population rapidly ages, demand for care home beds should naturally follow suit.
It’s estimated the number of over-75s in the UK will roughly double over the next half a century.
I’m confident this will provide the foundation for strong and sustained share price and dividend growth at businesses like Care REIT.
Having been in existence for less than a decade, the trust doesn’t have the near-30-year dividend pedigree of Primary Health. But it’s still proven a reliable dividend grower, with shareholder payouts having risen every year since its creation in 2016.
This record is due to Care REIT’s focus on the ultra-defensive residential care sector. But this is not all. Its tenants are tied down on ultra-long rental contracts (the weighted average unexpired lease term was 20.1 years as of September). In addition, 100% of the firm’s leases are inflation linked, allowing it to offset the impact of rising costs on annual earnings.
Despite interest rate sensitivity and labour shortages impacting the care industry, I think this is another top dividend share to consider.
