Dividend stocks provide a great opportunity for me to pick up passive income without having to take on a high level of risk. Granted, the pressure is on me to find the right stocks to pick. Not all companies pay out sustainable income in the way I’d like.
Yet here’s one FTSE 250 idea that really stands out to me at the moment.
The benefits of the investment trust
I’m referring to the Sequoia Economic Infrastructure Income Fund (LSE:SEQI). The investment trust trades on the stock market just like any other company. Yet the trust focuses on investing in a diverse portfolio of private debt and bond investments. So in buying the stock, I get exposure to a much broader range of opportunities.
Straight off the bat, there’s two advantages here. Sequoia is a well respected investment company, meaning that my funds are being managed by smart people. The other advantage is that I can access income-paying ideas that normally I’d struggle to find as a retail investor.
For example, the private debt deals that provide funds for large infrastructure projects are something that I’m never going to be able to participate in on my own. Yet the coupon and interest payments from these deals can be very attractive. So in purchasing the trust, I can get a piece of the pie and enjoy the benefits.
Points to ponder on
The trust has a strong track record of paying dividends. Even during the pandemic it kept paying out income. This bodes well for the future.
However, I have to remember that the nature of private debt deals is that they aren’t very liquid. What this means is that if money is being borrowed to build a new port, or power system, this can take years. It’s not going to be easy to get the money back quickly if for some reason the trust needs cash.
Talking numbers
At the moment, the dividend yield is 8.41%. This is high, yet isn’t being driven by a falling share price. Over the past year, the stock is down 5%, which doesn’t concern me too much. In fact, the share price is 14% lower than the net asset value of all the investments held.
Let’s say that I invest £200 each month. This would equate to buying 250 shares, given the current share price of 80p. If I kept this up for the next five years, I’d own 15,000 shares. Assuming no volatility in the share price, this would pay me just under £3,000 over the course of the five years. The following year it could pay me £1,274 alone.
This might not be a huge number to some, but remember that this is from a relatively modest investment amount. The yield of 8.41% is something that I’d struggle to get with other stocks or even on a Cash ISA.
