Penny stocks tend to be all about the potential for huge capital growth. Think risky oil plays or binary bet biotech firms.
Today however, I’m looking at a sub-£1 share whose main draw, at least for me, is its income stream. In fact, I think this dividend stock could quite easily be a core holding if securing a lifetime of passive income were my priority.
Defensive income
The stock — or real estate investment trust (REIT) to be completely accurate — is Assura (LSE: AGR). No, I hadn’t heard of it either.
To bring everyone up to speed, the FTSE 250 member owns, develops and manages medical centres for GPs. There are several reasons why this strikes me as an attractive destination for my money.
First, there’s the demand. It’s hard to imagine a more defensive sector in the market than healthcare. This quality has become even more apparent following the pandemic and the push to have more community-based services.
A consequence of this is that Assura has great visibility on earnings. Leases tend to be 21+ years. It’s also able to pre-let properties before they are even constructed.
All this has been good news for income hunters. With the exception of the anomaly that was 2020, Assura has a great record hiking its total payout. For me, that’s preferable to a company offering sky-high cash returns only for these to prove unsustainable and eventually cut.
So just how good are the dividends?
Analysts are predicting Assura will return 3.11p per share to holders in FY23 (which began on 1 April). Using Friday’s closing price, that’s a yield of 4.6%.
That may not be the highest I can find, but it still sounds pretty good to me. It’s slightly above that of peer Primary Health Properties (4.4%) and significantly greater than the FTSE 250 index as a whole (2.4%).
It goes without saying that 4.6% is also an awful lot more than I’d get from any kind of cash savings account. With inflation showing no sign of slowing, the value of my money is literally being eroded if I went for this option. No thanks.
Risks to consider
Of course, no investment is risk-free. Say what you like about cash savings (and I do), having at least some money on hand for life’s little emergencies (or just ridiculously high energy costs) is never a bad plan. I also know that my bank balance won’t jump around as the UK stock market has recently.
An investment in Assura carries no such guarantee. As evidence, the share price is down 7% in the last 12 months. Sure, some penny stocks have fared far worse. But there’s no rule to say it can’t fall further.
Then there’s the valuation. A forecast P/E of 21 is on the expensive side for an income stream that, while looking solid, can never be guaranteed.
Core holding
On balance, I’d be prepared to buy this dividend stock today. It ticks the vast majority of boxes on my checklist for a long-term income play.
And if I choose to reinvest what I receive, I stand to benefit even more from the magic that is compounding. How very Foolish.
