The criteria I use to screen stocks for my ISA are relatively simple. I’m looking for defensive, well-run businesses that produce a steady stream of income, just like Assura (LSE: AGR).
Assura is a defensive real estate investment trust focused on healthcare — one of the world’s most defensive industries. The company collects rent from a portfolio of primary care medical centres across the UK on long leases.
Rising demand
Demand for these properties from the NHS as well as other providers is high, especially new buildings that are more efficient and allow a higher number of patients to be treated more efficiently. Last year the government set out plans to invest £10bn to make NHS buildings fit for the future, £3bn of which could be made available to Assura in the ‘Primary Care Buildings Pledge’.
Even if the government cash does not materialise, Assura is still well placed to grow as it invests in existing assets. In the third quarter, the firm acquired 22 medical centres and one development for a total cost of £84m and a weighted average unexpired lease length of 13.5 years. In total, the group now owns 498 medical centres with an annualised rent roll of £87m.
A guaranteed income stream backs up the firm’s dividend yield, which currently works out at 4.3%, above the market average. Over the past few years, the payout has grown by around 10% per annum, and I expect this to continue as Assura invests in building out its defensive property portfolio.
Dividend growth champion
As well as Assura, I also believe Bellway (LSE: BWY) could be a fantastic ISA buy. Its income stream is not that defensive, but when it comes to dividend growth the firm’s record is second to none.
Over the past five years, as Bellway’s revenue has risen by more than 150%, net profit has jumped nearly five-fold enabling management to hike the per share dividend payout 510%. Even after this growth, the distribution is still covered three times by earnings per share and the builder has a debt-free, cash-rich balance sheet providing a cushion against any decline in revenues.
As my Foolish colleague, Peter Stephens pointed out earlier this week, even though there are some risks to the prospects of housebuilders like Bellway, high demand from first-time buyers, who have been encouraged by government policies such as stamp duty relief and the Help to Buy scheme, indicates that market conditions will remain favourable for some time.
City analysts are expecting earnings to expand by a further 19% over the next two years which should, they believe, allow the firm to hike its dividend by 20% while still maintaining the three times earnings cover. Based on these forecasts, the shares are set to support a dividend yield of 4.5% for 2019, marginally higher than that of Assura. As well as Bellway’s attractive dividend yield, the shares also trade at an attractive forward P/E of 7.3.
