With inflation running riot and markets bracing themselves for a possible recession, I think there’s a lot to like about income stocks at the moment. Here are three that I’d buy as dark clouds gather over the UK economy.
Top income stock
Recession or not, we all need to eat. As such, having some exposure to the grocery sector in my portfolio could be prudent. Normally, my first choice here would be Tesco for the sheer clout it has. Then again, it’s likely that consumers will be even less loyal about where they shop for the foreseeable future.
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As such, it’s hard to gauge who will come out on top. Consequently, I’m drawn to Supermarket Income REIT (LSE: SUPR) as a more defensive option.
This real estate investment trust snaps up supermarket property in residential areas with inflation-linked leases. Customers include all four of the biggest companies in this area — the aforementioned Tesco, Sainsbury’s, Asda and Morrisons. The fact that these clients are very long-term means dividends should be as secure as they can possibly be. Based on analyst estimates, SUPR currently yields 4.6%.
The downside to all this is the valuation. A P/E of 22 shows just how popular this REIT is right now. To help mitigate the risk of buying high, I’d put my money into other income stocks in addition to buying here.
Speaking of which, a second REIT I’d buy is Target Healthcare (LSE: THRL). It snaps up care homes and then lets them out on long-term leases. Exciting? No. Good income visibility? Yes.
Earnings per share are projected to grow by 17% in FY23 (beginning in June). This would leave its shares trading on a forecast P/E of 17: not cheap but not ludicrously expensive either.
But Target is more than just a great option for recessionary times. The UK population is likely to see a significant shift in its age profile in the next few decades. Thanks to increased life expectancy, the number of elderly people requiring care and support will be a lot higher.
The caveat here (and elsewhere) is that the 5.9% yield can never be guaranteed. As any experienced investor knows, it’s best to expect the unexpected.
Income and growth?
As it sounds, Renewables Infrastructure Trust (LSE: TRIG) invests in renewable energy projects. These include onshore and offshore wind farms and solar parks in the UK and Europe. By selling the electricity generated, TRIG is able to provide holders with a stable income stream in good economic times and bad, hence its inclusion here.
Based on analyst projections, the FTSE 250 constituent currently yields 5.2%. That’s not enough to beat inflation on its own but it’s worth highlighting that the TRIG share price is also up 7% over the last year. Valuation-wise, the trust changes hands for 11 times earnings.
Drawbacks with TRIG include the fact that renewables projects can take time to get up and running and can be quite costly to maintain.
Like Target Healthcare however, TRIG has a pretty solid long-term outlook. As the push towards green energy really gathers momentum, I reckon the shares will be in demand. Buying for my own portfolio today could really pay off in a few years.