2 top passive income shares to consider buying in May

Royston Wild thinks now’s a great time to go shopping for UK passive income shares. Here are two of his favourites for both short- and long-term investors.

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The London stock market’s packed with brilliant passive income shares. Here are two I believe will pay a huge — and growing — dividend now and in the future.

Safe as houses?

Construction giant Vistry Group (LSE:VTY) has enormous growth potential, given the perky outlook for the British housing sector.

The near-term picture remains uncertain as mortgage rates rise again and the economy struggles. But house prices are expected to rise over a longer time horizon as conditions improve and the growing population boosts homes demand.

Estate agent Savills thinks average property values will rise £61,500 between now and 2028. Vistry’s decision to focus on partnerships sets it in good shape to capitalise on this fertile landscape too.

This will boost the FTSE 250 firm’s completion numbers in the years ahead. It will also help the builder better capitalise on the affordable homes segment, where demand’s especially high.

Finally, Vistry’s partnerships model will allow it to release higher amounts of cash. This is because local authorities and housing associations shoulder the majority of the construction costs. This frees up money the company can use to invest in the business, as well as return to shareholders.

With City analysts also tipping it to rebound strongly in the next few years, dividends are expected to rise strongly through to 2026, as the table below shows.

YearDividend per shareDividend yield

This means the dividend yield on Vistry shares accelerates above the FTSE 100 and FTSE 250 averages. These stand way back at 3.6% and 3.3% respectively.

Rentals giant

Property giant The PRS REIT (LSE:PRSR) isn’t expected to grow dividends as rapidly over the next couple of years. But it’s still another excellent income stock to consider, in my opinion.

This is thanks in part to its classification as a real estate investment trust (REIT). Sector rules mean it must pay at least 90% of annual profits from its rental operations out in the form of dividends.

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.

It’s also because of the dependable income the company receives from its tenants. Rent collection here came in at 99% during the six months to December 2023, illustrating the stable nature of residential rentals.

Finally, PRS is thriving as rental costs in the UK shoot through the roof. Latest official data showed average rents rose 9% in the 12 months to February. This was the highest rate of growth on record.

Combined, these qualities typically result in the company offering an above-average (and rising) dividend yield, as shown below.

YearDividend per shareDividend yield

PRS’s share price has dipped in 2024 as hopes of significant interest rate cuts have receded. Higher rates depress net asset values (NAVs) for property stocks and, by extension, provide a drag on earnings.

Yet I think the potential dividends I could receive over the next few years make the company worth serious consideration today.

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.

Royston Wild 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.

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