Searching for good stocks to buy for a second income is more difficult today as the global economy struggles and corporate profits come under pressure. But it’s not impossible to find UK shares that should provide solid dividend income even in the current climate.
Here are two on my own watchlist today. If broker forecasts prove correct, a sum of £20,000 equally invested in them today could provide passive income of £1,140.
The PRS REIT
Investing in property stocks can be a wise strategy in times like these. Businesses like real estate investment trusts (or REITs) tie their tenants down to long term contracts. This means that revenues and profits remain broadly stable at all points of the economic cycle.
Residential property specialist The PRS REIT (LSE:PRSR) is one such business I’d invest in today. In theory, rent arrears are a constant threat here as the cost-of-living crisis drags on. But the company’s ability to skirt this problem is highly encouraging. It failed to collect just 3% of rents in the three months to June.
I’d argue in fact that now is a great time to buy the build-to-rent specialist. While build cost inflation remains high, rents in the UK are also soaring due to a worsening supply shortage.
Prices paid by private renters surged by a record 5.3% in the year to July, according to the Office for National Statistics (ONS).
An exodus of buy-to-let landlords and weak housebuilding rates is driving costs through the roof. A poor supply pipeline and a growing population mean this market imbalance looks set to stay for some time.
I think PRS REIT could be a good way to make an extra income. Its dividend yield for the current financial year (to June 2024) sits at 5.4%. The firm’s status as a real estate investment trust — which means it has to pay at least 90% of annual rental earnings out in the firm of dividends — suggest it could be a great dividend share to own for years to come.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
National Grid
I reckon 6% yielding National Grid (LSE:NG) is another top income stock for these uncertain times. City analysts expect dividends to grow this fiscal year (to March 2024) and through the following two years as well.
National Grid’s purpose — ensuring that electricity is transferred from producers to users in a safe and efficient manner — is in high demand during economic upturns and downturns. The fact that the FTSE 100 firm also has a monopoly on what it does provided earnings with an added layer of protection.
A drawback of buying its shares is that its operations are highly regulated. This can create an array of dangers for investors. For example, the government can choose to set limits on customer charges and cap dividends.
But on balance I believe the utilities business is one of the most robust out there. What’s more, as the UK transitions to a green economy, it has significant opportunities to grow earnings (and thus dividends). Power grid operators will play a vital role in the adoption of renewable energy and electric vehicles (EVs).
