I’d buy 11,950 shares of this 6.3%-yielding FTSE 250 stock for £1k a year in passive income

This FTSE 250 stock has a solid record of paying out rising passive income. Here’s why I would invest in the shares today.

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At the beginning of 2023, I thought US tech stocks looked oversold. Consequently, I put most of my focus and money on that area of the market. However, since those shares have rebounded strongly, I’ve mainly been investing in high-yield dividend shares. And my ongoing quest for income has led me to one FTSE 250 share in particular.

High-quality income streams

The stock in question is BBGI Global Infrastructure (LSE: BBGI), a Luxembourg-based investment trust.

As the name implies, the company invests in a portfolio of infrastructure assets around the world. These total 56 projects across the UK, North America, Australia, and Europe. They include schools, hospitals, motorways, fire and police stations, and an army base.

Most of these are public-private partnerships, meaning the group’s contracted revenue comes from a public authority or government. And revenue from its 56 assets is 100% availability-style, which means revenues are paid so long as the assets are maintained and available for use.

So the nature of this infrastructure makes demand almost permanent, underpinning extremely stable revenue.

At the end of June, 99.4% of the portfolio was operational. It only had one asset under construction, Highway 104 in Nova Scotia, Canada, where completion is scheduled for Q3 2023.

What I particularly like here is the company’s focus on low-risk investments in stable countries. And that the cash flows are inflation-linked. This has enabled it to achieve its target annualised total return of between 7% and 8% since listing in 2011.

An attractive discount

Enticingly, at 133p, the shares are currently trading at an 8.45% discount to the trust’s underlying assets. That’s in stark contrast to the last few years when they have tended to trade at a significant premium.

This valuation decline is due to deratings across the infrastructure sector following recent interest rate increases. However, of the trust’s 56 assets, only one has a refinancing obligation for a small tranche of debt. So it seems to be largely insulated from higher rates.

Therefore, the discounted shares appear undervalued to me. And this is why I intend to buy the stock as soon as I have the cash to do so.

But what level of passive income could I expect to achieve?

Income generation

Next year, the trust expects to pay out 8.40p per share. That gives the stock a forward-looking dividend yield of 6.3%.

That means I’d need 11,950 shares to aim for £1,000 a year in passive income. They would cost me around £15,900.

Admittedly, that is a sizeable sum. But I feel the firm’s low-risk portfolio, with its dividends set to be fully cash covered, makes this an excellent candidate for generating passive income.

Defensive and diverse

One thing for investors to consider here is that the trust has assets across three continents. Therefore, this does open up the possibility of volatility if there are negative foreign exchange movements.

That said, it implements a currency hedging strategy to mitigate these risks. But it can’t eliminate the impact of large currency swings entirely.

Overall, though, I feel this globally diversified and defensive portfolio is a positive. And while no payout is ever truly secure, the income here is predictable and inflation-linked. To my eye then, the stock looks fantastic value and is worth buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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