£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could get the ball rolling.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing in good dividend-paying stocks could be the key to build a passive income stream, in my view.

Although dividends aren’t guaranteed, there are some quality picks out there with defensive operations that could bolster my wealth.

One example of this is Assura (LSE: AGR). Let’s say for the purposes of this article I had £13,200 to hand to buy some shares. With that investment, I could earn £1,000 in passive income annually based on its current dividend yield of 7.6%.

Here’s why I like the look of Assura!

Healthcare properties

Assura is a real estate investment trust (REIT). This means it is an income producing property business. What attracts me to REITs – and has been a big driver in me buying shares in other REITs – is that they must return 90% of profits to shareholders as dividends. In Assura’s case, it makes money from healthcare properties, such as GP surgeries.

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.

The shares haven’t had the best time recently. I reckon this is due to macroeconomic volatility hurting the property market due to higher than normal interest rates and inflationary pressures. Over a 12-month period, the shares are down 17% from 51p to current levels of 42p.

My investment case

Starting with the bull case, Assura’s defensive traits are a major draw, if you ask me. The fact the company rents many of its assets to the NHS could help to boost performance and payouts. A big reason for this is government contracts come with a level of safety and longevity. In addition to this, the chances of defaults are very small.

Furthermore, when you consider the current state of the NHS and the political landscape in the UK, Assura could find itself able to grow its portfolio, presence, and returns. The NHS is experiencing soaring demand for healthcare due to an ageing and growing population. This could be good news for the business and its future prospects.

From a bearish view, I’m wary of short to medium-term continued volatility. Higher interest rates could spell bad news for net asset values (NAV) and on borrowing levels, which can be higher for growth purposes, and costlier to pay down for existing liabilities. This could have an impact on performance, investor sentiment, and Assura’s levels of return.

Next, the changing face of the NHS is a worry. A lack of qualified staff is a concern for me. It’s all well and good having high demand and Assura providing lots of properties for the NHS, but if the state-backed healthcare provider doesn’t have the staff to run them, that’s bad news for Assura. I’ll keep an eye on this front.

Final thoughts

As with all stocks, there are pros and cons to consider. However, in this case, the positives outweigh the negatives by some margin in my eyes.

Assura’s defensive operations, combined with potential growth opportunities, look excellent. If I had the cash to buy some shares I would be willing to do so. I think the passive income opportunity looks like it could only grow.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »

Investing Articles

The Aviva dividend yield’s already over 7%. Could it go higher?

Christopher Ruane explains why he thinks the Aviva dividend could be on course to grow this year and beyond. Might…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

2 shares I’d buy to try and double my money in 10 years

Stephen Wright thinks there are still opportunities to to buy UK shares that can double in value over the next…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

NIO stock has crashed! Here’s why I still wouldn’t touch it with a bargepole

I've been watching NIO stock falling heavily, and wondering when might be a good time to get in cheaply. Here's…

Read more »

Investing Articles

Why have Rolls-Royce shares fallen this week?

Rolls-Royce shares remain the best performing on the FTSE 100 over the past year, but there's been some pullback. Dr…

Read more »

Investing Articles

With a 4.3% yield, I consider this FTSE company an exceptional investment

Oliver Rodzianko say this FTSE company is focused on quality and long-term survival. As such, he thinks he'll hold it…

Read more »

Investing Articles

How I’d invest £10,000 in a Stocks & Shares ISA and aim for a £45,500 second income

Millions of us aren’t earning the second income we deserve. Here, Dr James Fox explains how he’d get his savings…

Read more »