Why I think these dividend stocks could have you laughing all the way to the bank

These two income plays offer the perfect combination of value and income, writes Rupert Hargreaves.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you are looking for high-quality dividend stocks to add to your portfolio, I highly recommend considering the GCP Infrastructure Investments Ltd (LSE: GCP) fund.

As the name suggests, these types of funds offer exposure to infrastructure projects, which are perfect income-generating assets. They tend to be designed and built to last for many decades, throwing off a steady stream of income that’s usually linked to inflation.

GCP uses a slightly different strategy, but its overall aim is the same. The company invests in infrastructure loans and has an extensive portfolio of these covering everything from education and healthcare PFI to renewable energy projects. At the end of March, the company portfolio’s contained 47 of these investments, and the largest holding accounted for 11% of assets under management.

Regular income

So far, the firm has been hugely successful in generating a regular income for investors. For six years in a row, portfolio income has enabled GCP to pay a dividend of 7.6p per share per annum. It looks as if management is planning to keep this track record alive, according to the group’s latest half-year results release.

At the time of writing, this implies the stock has a dividend yield of 6%. Unfortunately, investors will have to pay a premium to get their hands on the market-beating dividend yield. At the end of March, GCP’s net asset value per share was 112.5p.

Currently, the stock is trading at a premium of 13% to the net asset value. Still, I think the premium is worth paying to buy into this diversified portfolio of income-generating infrastructure backed assets. They should continue to throw off a steady income stream for many years to come.

Rock-solid income

Another income fund I think is worth considering for your portfolio is the Ground Rents Income Fund (LSE: GRIO). Again, as the name suggests, the fund invests in ground rents and head leases across the UK. These assets have an annuity-like cash flow, providing a steady stream of income for decades, or even centuries.

Indeed, at the beginning of August, the company told investors the weighted average duration of leases its portfolio was 345 years. On top of this, income from 70% of the group’s approximately 19,000 investments is linked to inflation and have upward-only rental increases. 

Following a review of its strategy at the beginning of August, Ground Rents reaffirmed its commitment to pay out 4p per share per annum to investors as a dividend. At the current share price, that’s equivalent to a dividend yield of 5%. 

Also, the stock is trading at a price to book value of just 0.7. This implies the business is worth substantially more than a value of the market is currently placing on it. In my opinion, this valuation gap gives investors a wide margin of safety. 

Also, a return to book value would imply an upside of 43% from current levels. That’s why I think it’s worth considering Ground Rents for your portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share 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.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »