Generally speaking, UK shares offer a higher dividend yield than equities listed on overseas stock indices. This means the London Stock Exchange can be a better way for Stocks and Shares ISA investors to achieve a passive income.
The FTSE 100 and FTSE 250 currently offer average forward yields of 3.9% and 3.4% respectively. These figures are way ahead of the 1.5% average for S&P 500 shares in the US, and the 2.5% average for stocks on Germany’s DAX index.
But I’m not content with the Footsie and FTSE 250 averages. This is because, with some careful research, I can find UK top stocks with much better yields.
Here’s one top dividend stock I’m hoping to buy at the next opportunity.
A top investment trust
Real estate investment trusts (REITS) are obliged to pay a minimum of 90% of annual rental earnings out in the form of dividends. While this can make them top passive income stocks, their ability to pay abundant dividends can come under pressure when profits sink.
I believe The PRS REIT (LSE:PRSR) is in better shape than many to continue delivering market-beating income. This is because of its focus on the highly defensive residential lettings market.
People always need a roof to live under which, in turn, provides the business with exceptional earnings visibility. This is illustrated by the company’s impressive rent collection, which remained at a robust 99% in the three months to December.
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Robust market
While rent growth in the UK is slowing, an increasing shortage of rental properties means that tenant costs are continuing (and should continue) to rise. Latest Rightmove data shows that advertised rents are currently 9.2% higher than they were a year ago.
The longer-term outlook for landlords like PRS is pretty solid, in my opinion, as Britain’s population rapidly grows. The Office for National Statistics now predicts that the current population of 67m will soar to 74m by 2036, putting ever-greater stress on the country’s housing sector.
PRS is ramping up construction to capitalise on this fertile landscape as well. It grew its portfolio to 5,264 family homes as of the end of December, up from 4,913 a year earlier.
Excellent value for money
City analysts expect the dividend to remain locked at 4p per share again this financial year (to June). However, shareholder payouts are tipped to start growing again from next year.
In addition, for the current fiscal period, PRS still packs a healthy 4.7% dividend yield. This makes it a more lucrative dividend stock than most other FTSE 100 and FTSE 250 shares.
On the downside, asset values at the business could remain under pressure if interest rates remain at elevated levels. But I think this is more than baked into its rock-bottom valuation. PRS trades on a price-to-earnings growth (PEG) ratio of 0.6, well below the value benchmark of 1.
I’ll be looking to buy this small-cap stock for my ISA when I next have cash to invest. It’s one of many top dividend shares I think could provide a healthy second income for years to come.
