I’d buy 11,907 shares of this FTSE 250 stock to lock in £1,000 a year in passive income

The UK stock market is jam-packed with shares that pay attractive dividends. Here’s one I’d snap up now to start generating passive income.

| More on:
Elevated view over city of London skyline

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.

When it comes to dividend stocks paying out passive income, I tend to believe that boring is better. That is, I don’t want some exciting tech firm whose business model is ultimately built on sand.

I’m after an established company that operates in a permanent sector. And I want to see a solid track record of rising dividends. So, boringly dependable, basically.

Here, I’ll highlight a FTSE 250 stock that ticks all my boxes.

Low-risk dividends

BBGI Global Infrastructure (LSE: BBGI) is an investment company with 56 infrastructure assets in the UK, North America, Australia, and continental Europe.

First off, I like this global diversity, with the portfolio spread across developed countries with credit ratings between AA and AAA.

Geographic split
Continental Europe13%

I also like the nature of these assets. We’re talking about motorways and bridges, schools, hospitals, police and fire stations, colleges, and more. Basically, things that are unlikely to disappear overnight.

In the UK, this includes Gloucester Royal Hospital, the M1 Westlink, and the M80 motorway in Scotland’s central belt.

Moreover, this is public sector-backed contracted revenue, resulting in predictable long-term cash flows that have inflation linkage.

No dividend is ever totally safe, but this comes close, in my opinion. It has a consistent payout record stretching back to 2011.

Source: BBGI 2023 annual report

So why on earth has the share price fallen 25% in three years?

Risks in perspective

The culprit has been higher interest rates. This has made other assets more attractive than shares, which carry slightly higher risk (and reward).

So one challenge here would be a return of inflation and a higher-for-longer rate environment. That could further dampen investor sentiment towards the shares.

Additionally, refinancing existing debt at higher rates can negatively impact cash flows due to the increased costs. However, 55 of its 56 assets have no refinancing risk.

Plus, BBGI now has no debt on the trust level after it fully repaid a revolving credit facility that it used in 2022 to fund two investments.

Those repayments were made entirely from surplus cash flows last year. This signals that it can continue to grow organically without needing to access equity markets for funding.

Indeed, BBGI estimates that even without further acquisitions, the portfolio could continue to generate a rising dividend for the next 15 years.

Last year, its dividend was covered 1.4 times by cash flows.

A grand a year in passive income

Speaking of the dividend, this increased 6% last year to 7.9p per share. And the firm has signalled its intent to raise this another 6% in 2024 (to 8.4p).

This gives the stock an attractive forward dividend yield of 6.46%.

At today’s share price of 130p, this means I’d need approximately 11,907 shares to generate £1,000 a year in passive income for this financial year. They would cost me around £15,480.

Now, that’s way more than I intend to initially invest in this dividend stock. But I plan to continue buying shares over time, especially while they’re trading at a 10% discount to net asset value (NAV).

Whenever the stock pays me dividends, I plan to reinvest them and generate higher passive income down the road.

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.

Ben McPoland 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

Investing Articles

If I’d invested £1,000 in Tesla stock a decade ago, here’s what I’d have now!

While many of us debate whether Tesla stock is worth the price today, it's undeniable that the EV share has…

Read more »

Investing Articles

Here’s what Michael Burry did as the BP share price dipped!

The BP share price has fallen from its peaks once again, and infamous investor Michael Burry may have spotted an…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

What on earth’s going on with the Barclays share price?

The Barclays share price has skyrocketed in recent months, becoming one of the best-performing stocks on the FTSE 100 since…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Analysts say this amazing FTSE 100 stock is a takeover target!

This FTSE 100 stock's one of the worst-performing companies on the index in 2024. So why might other companies want…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »