The dividend yield on UK shares comfortably beats the average for stocks listed on foreign stock indexes. If City forecasts prove correct, this means that a balanced portfolio of British stocks could deliver me an impressive passive income.
Supermarket Income REIT (LSE:SUPR) and Legal & General Group (LSE:LGEN) are a couple of dividend heroes on my radar today. Details on dividend growth and their gigantic yields are shown in the table below.
| COMPANY | ANNUAL DIVIDEND GROWTH (forecast) | DIVIDEND YIELD |
|---|---|---|
| Supermarket Income REIT | 1% | 7.5% |
| Legal & General Group | 5% | 8.3% |
A £1,185 passive income
There’s no such thing as a guaranteed dividend. But encouragingly, these companies have proud track records of paying large and growing shareholder rewards. And they look in good shape to keep this going.
With an average yield of 7.9%, £15,000 invested evenly across these businesses could help me achieve a healthy passive income of £1,185 in 2024. I’ll be looking to buy them to my portfolio at the next opportunity, and here’s why.
Safe as houses
As the name implies, Supermarket Income REIT is a real estate investment trust. This means that, in exchange for certain tax advantages, it is required to distribute at least 90% of annual rental profits out by way of dividends.
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The FTSE 250 stock fell sharply in 2023 as higher interest rates pushed net asset values (NAV) lower. This could remain a problem in the New Year too if inflation remains above normal levels.
But on the plus side, City analysts still expect the company to continue paying above-average dividends. This is thanks to its focus on a robust retail segment and its blue-chip tenant list (which includes Tesco, Sainsbury’s, and Aldi).
Occupancy and rental collection both stood at 100% in the 12 months to June, which in turn gave it the strength to continue hiking shareholder payouts.
Recent share price weakness has powered Supermarket Income’s dividend yield above 7%. It also means that, at 80p per share, the REIT trades at large discount to its net asset value of 97p. This makes it an excellent stock for value chasers like me.
A FTSE 100 bargain
Profits at Legal & General tend not to be as stable during economic downturns. People can’t do without food, but they can slash spending on life insurance, investment funds, and many other financial products.
Yet this hasn’t so far affected the Footsie firm’s ability to continue paying massive dividends. This is thanks to its stunning cash generation that gives it one of the strongest balance sheets in the business.
Encouragingly for future dividends, its Solvency II capital ratio stood at 230% at the end of June. Between 2020 and mid-2023, net surplus generation exceeded dividends by a gigantic £600m.
The company’s current capital and dividend strategy is due to end this year. But I’m expecting it to continue delivering impressive cash generation for years to come, underpinned by demographic changes that should drive demand for its retirement and protection products.
Today Legal & General shares trade on a forward price-to-earnings (P/E) ratio of 9.6 times. All things considered, I think it’s one of the FTSE 100’s best value stocks right now.
