Dividend shares can be a great source of passive income. And rising interest rates mean that there are some stocks with interesting yields at the moment.
Right now, I have two dividend shares that I’m looking to buy, both based in the UK. One is a healthcare landlord, the other is a brick manufacturer.
Primary Health Properties
Rising interest rates have been weighing on UK property prices. As a result, there are some attractive opportunities in the real estate investment trust (REIT) sector.
UK REITs have seen their asset prices fall substantially with the rise in interest rates. And share prices have been following almost across the board.
One example of this is Primary Health Properties (LSE:PHP). The stock is down 28% over the last 12 months, which has caused the dividend yield to rise to 6.5%.
As a company that owns and leases GP surgeries, it has a unique risk. 90% of its rental income comes from the NHS. This makes the firm vulnerable to changes in health policy.
At today’s prices, I think that the risks are worth the rewards though. Despite the decline in asset values, Primary Health Properties has raised its dividend for the 27th consecutive year.
The stock is on my buy list because I think that it’s attractive at today’s prices and can offer a durable source of passive income going forward. I’m looking to buy it later this month.
Forterra
I’m also looking to buy shares in brick manufacturer Forterra (LSE:FORT) this month. I’ve been an admirer of the stock for a while, but I’d always thought there was something more attractive to buy.
At the moment though, I don’t think that’s the case. The stock trades at a price-to-earnings (P/E) ratio of 9 and has a dividend yield of 5%.
That dividend isn’t coming at the expense of growth. The company has been expanding its manufacturing capacity to take advantage of local supply falling short of demand in the UK.
Its new facility also means that it can produce bricks at a lower cost than before. This is important, since one of the biggest risks facing Forterra at the moment is inflation.
It reported earnings this week. One of the central challenges that emerged from the announcement was the potential for higher costs to weigh on margins.
There are two sources of margin pressure. The first is the rising cost of energy and the second is higher prices for input materials.
Both of these are issues that investors will want to keep an eye on. But the company is doing a good job of maintaining its margins so far.
By being proactive with its procurement, Forterra has managed to secure 80% of this year’s energy requirements. And the business is adjusting its pricing structure to deal with higher cement costs.
On balance, I think Forterra is a company with a bright future. The fact that I also think it’s trading at a decent price puts the stock firmly on my list to buy this month.
