I think these FTSE 100 and FTSE 250 companies could be great ways for me to make market-beating passive income. Here’s why I’ll buy them when I have extra cash to invest.
Investing in real estate investment trusts (REITs) is a popular pursuit for income investors. These firms are required to pay a minimum of 90% rental profits out in the form of dividends each year.
I already own several REITs in my portfolio to make a second income. And I’m considering adding Unite Group (LSE:UTG) shares to these holdings. The dividend yield here for 2023 sits at a healthy 4.2%.
This FTSE 100 company is a giant in the student accommodation sector. It provides a base to some 70,000 students across 23 university cities and towns.
This property sector could deliver spectacular returns for investors in the coming years. In fact real estate services provider CBRE Group recently said that the underlying fundamentals of the student housing market “have never been in better shape” on a macro level.
There simply isn’t enough accommodation to go around. CBRE says that “this is underpinned by broad demographic trends, with the population of 18-year-olds forecast to continue rising and increasing participation rates.”
Yet planning-related obstacles and high build costs mean supply growth is actually slowing. This is why Unite Group has tipped full occupancy and rental growth of 6% to 7% for the 2023/24 academic year. It can expect market conditions to remain favourable for years to come.
City analysts agree, which is why they expect earnings — which have grown in four of the last five years — to keep expanding through to 2025 at least.
Unite, of course, isn’t immune to high inflation in the construction industry. But on balance I think the potential financial benefits of owning its shares greatly outweigh the risk this poses to earnings.
Greencoat UK Wind
Renewable energy stocks like Greencoat UK Wind (LSE:UKW) have masses of investment potential, too. As the world transitions away from fossil fuels, suppliers of wind, solar and other green power will play a critical role in keeping the lights on.
This particular FTSE 250 share — which offers a 6.3% dividend yield for this year — is invested in dozens of onshore and offshore wind farms across the UK. And thanks to its significant cash flows it continues to rapidly build its asset portfolio.
In April it acquired the Dalquhandy wind farm in Scotland for £50m. This has pushed Greencoat’s total generating capacity to 1,652MW, and I’m expecting further earnings-boosting acquisitions before long. It still has a “healthy” pipeline of potential acquisitions, it announced last month.
Buying renewable energy stocks also isn’t without its risks. Building wind farms is a massively expensive enterprise. And keeping existing ones running is becoming increasingly costly as extreme weather events become more common.
But like Unite Group, I still expect Greencoat to deliver excellent returns over the long term. And I believe its defensive operations make it a great way to make dividend income in this difficult economic climate.