I’m searching for the best British stocks to buy for a market-beating second income. Here are two on my radar right now.
The PRS REIT
Higher interest rates pose a threat to real estate investment trusts (REITs) like The PRS REIT (LSE:PRSR). These businesses have slumped in value in 2023 as property prices have steadily reversed.
But I believe this property stock remains a great buy as residential rents charge northwards.
Data this week from Rightmove shows average rental price growth soared to 10% between July and September on an annual basis. The property listings business also said that the average queue of tenants requesting a property viewing has more than tripled to 25 from eight in 2019.
Weak housebuilding rates and a steady exit of buy-to-let investors is hitting supply hard. And the problem looks set to get worse before it gets better, meaning rents at companies like PRS REIT should keep charging higher.
The small-cap share — which recorded like-for-like rent growth of 7.5% in the three months to June — carries a large 6% forward dividend yield today.
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Glencore
Mining stocks like Glencore (LSE:GLEN) face challenging trading conditions over the next 12-18 months. Stubburn global inflation and a poorly-performing Chinese economy all suggest commodities prices could remain depressed.
A gloomy demand outlook was underlined by the World Trade Organisation this week. The body sliced its forecasts for global trade growth in 2023 to 0.8%. It had predicted growth of 1.7% just five months ago.
Commodities companies are highly cyclical and their profits can sink at times like this. But I still believe Glencore will pay market-beating dividends in 2023, and perhaps beyond. That’s even though this year’s predicted payout is covered just 1.3 times by expected earnings.
This is thanks to the company’s rock-solid balance sheet. It had net debt of ‘just’ £1.5bn on its balance sheet as of June. This meant it had a net-debt-to-adjusted EBITDA ratio of below 0.2 times.
Gven the current macroeconomic outlook, I’m 50-50 as to whether Glencore will cut the dividend more sharply than analysts currently expect. However, I still believe the FTSE 100 firm will deliver dividends far ahead of most other UK blue-chip shares.
Based on current City forecasts, Glencore shares carry an 8.8% dividend yield for this year. But let’s say that the company pays a lower dividend that brings coverage in line with the safety benchmark of 2 times. Such a payment would still produce a huge 5.7% yield.
It’s clear that mining stocks like this may not be ideal choices for risk-averse investors. Real estate companies like The PRS REIT may be a better bet for these individuals. The steady flow of rental income these firms receive remains largely unchanged, regardless of broader economic conditions.
But I’d happily buy both these UK shares for a second income. I certainly expect Glencore to pay attractive dividends over the long term as the green energy transition supercharges demand for commodities like copper, aluminium and iron ore.
