I’m building a list of the greatest FTSE 100 and FTSE 250 stocks to buy for a second income. Here are several I’d love to buy when I next have cash to invest.
Economic turbulence in China casts a shadow over commodities demand in the short-to-medium term. But I’m still tempted to add Anglo American to my portfolio.
This isn’t just because today the mining giant carries a FTSE 100-beating 4.5% dividend yield for 2023. I’m mainly attracted to it because of the bright demand outlook for industrial metals over the next 20 years.
Situations like the growing green economy, sprawling urbanisation, and increased digitalisation should all supercharge sales of copper, iron ore and nickel. These are all metals that Anglo American produces from its global network of projects.
Residential landlord Grainger offers a lower forward dividend yield of 2.8%. But I still think it’s a great income stock to buy owing to its solid history of payout growth (excluding during the pandemic).
Its progresssive dividend policy is thanks to its robust position in the defensive residential market (the FTSE 250 firm is the UK’s largest-listed landlord). It’s also because rents have risen at a rapid pace recently.
In fact rental growth continues to accelerate. Figures from lettings platform Goodlord this week showed average rents up 10% in the 12 months to August.
A bleak supply outlook means tenant costs look poised to keep rising. So I expect Grainger to post more solid profits growth despite the threat from rising build costs.
FTSE 100-quoted Diageo also has a proud record of dividend growth. In fact the drinks company — which carries a decent 2.6% dividend yield for 2023 — has raised annual payouts every year for around three decades.
Falling alcohol consumption in the West poses a threat. Yet soaring spending in developing markets could mitigate this and deliver excellent long-term profits growth. Analysts at Statista expect sales in Asia to rise almost $120bn between now and 2027.
The enduring popularity of brands like Captain Morgan, Guinness and Smirnoff give Diageo the means to pay an increasing dividend each year. The company can raise prices on these labels even during tough times. And these market-leading brands put it in pole position to win new customers in emerging regions.
Target Healthcare REIT
Care home operator Target Healthcare REIT is another FTSE 250 stock I own. I bought it to capitalise on rising life expectancy in the UK and the country’s growing elderly population.
I’m considering buying more following heavy share price weakness. Today its dividend yield sits at a gigantic 7.8% for this financial year (to June 2024).
This in part reflects real estate investment trust (REIT) rules that demand at least 90% of annual rental profits are distributed as dividends.
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Rising interest rates could keep Target Healthcare under pressure by pushing up its borrowing costs. Yet I still believe, like those other FTSE 100 and FTSE 250 shares, that it’s a top stock to own for the long haul.