When looking to build a lifelong passive income and to target £1,000 a year, I’d focus on accumulating shares in FTSE 250 stock Primary Health Properties (LSE:PHP).
I think owning shares in this real estate investment trust (REIT) trumps other second income-generating strategies out there. Those include buy-to-let, drop-shipping, self-publishing, and more.
With a focus on modern primary healthcare facilities across the UK and Ireland, PHP offers a unique blend of stability and growth, plus it has the tax advantages of a REIT.
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.
Dividends with longevity
PHP’s portfolio, comprising health centres and GP surgeries, is underpinned by long-term, inflation-proofed rental agreements. These contracts are primarily with government-backed tenants.
This structure provides a stable and predictable income stream, crucial for reliable dividend payouts. In fact, the company has increased its dividend yield for 27 consecutive years. Even during the Dotcom Bubble, the Great Financial Crisis, and the Covid pandemic, PHP increased its dividend.
In 2023, Primary Health Properties has continued to enhance its financial position. It generated an additional £4m in annual income from rent reviews. PHP’s strategic moves in the market further underpin this growth. For example, it acquired the property investment business Axis Technical Services Ltd in Ireland in early 2023.
Healthcare’s senior surge
The ageing population in the UK could be a significant tailwind for PHP’s business model. By 2050, the ONS projects that one in four people in the UK will be aged 65 years and over, up from one in five in 2019. This shift is a result of declining fertility rates and longer life expectancies.
This demographic trend not only increases the demand for healthcare services but also for the modern, primary healthcare facilities that the REIT invests in and manages.
Strategy for a £1000 passive income
Aiming for £1000 in passive annual income from PHP requires an investment that leverages its current dividend yield of 6.42%.
This equates to an investment of approximately £15,576.32.
Therefore, spread over three years (156 weeks), this translates to a manageable weekly investment of around £99.85.
At Primary Health Properties’ current share price of about 104p, this means purchasing roughly 96 shares each week.
Risks ahead
While PHP’s track record in dividend growth puts it in the exclusive Dividend Aristocrat club, past results are no guarantee of future returns, of course.
Being in the healthcare sector makes the company highly dependent on government funding. Those funding sources could easily get chopped according to the political whims of the day.
In my portfolio, PHP makes up 10% of the total value. The strategy I’ve outlined wouldn’t be right for me currently, as it would mean PHP growing beyond the 10% threshold I’m comfortable with. I’d need a much bigger portfolio, or be growing it much faster than I can currently afford, to keep PHP at 10% of the total.
Diversification is key in any investment strategy. While PHP is a robust option for steady dividends, I try to balance my investments across various sectors and asset classes.
