The London stock market is a treasure trove of top passive income stocks. With a large lump sum, it’s possible for investors to generate a four-figure dividend income this year, and one that grows over time.
Here are two I think are worth serious consideration today:
Dividends are never, ever guaranteed. But if broker forecasts prove accurate, a £15,000 payment invested equally across these shares will generate a £1,298 in passive income.
But what makes them potentially attractive investments?
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Smiths News is a major distributor of newspapers and magazines in the UK. It’s been doing so for 200 years, but as the world turns digital, the threats looking ahead are obvious.
Latest results showed revenues and operating profit tumbled 1.9% and 7.8% respectively in the first half. But on the plus side, a combination of price hikes and cost-cutting is helping to take the sting out of falling circulations.
There are some other reasons to be optimistic too. Smiths News is diversifying into other areas to offset the threat to its traditional business. It’s expanding its distribution operations, and currently delivers products to supermarkets and convenience stores.
The company also launched a waste recycling business early last year and is making good progress in this area. It now has 5,000 subscribers on its books.
Despite that first-half profits drop, Smiths raised the interim dividend 25% year on year. This was thanks to a refinancing agreement that helped the business lift a £10m cap on shareholder payouts. A halving in net debt in the period could set it up to continue growing dividends too.
This is undoubtedly a high-risk share. However, a forward price-to-earnings (P/E) ratio of 5.9 times suggests it could be worth the gamble.
Property giant
Supermarket Income REIT may be considered a safer pick right now. As its name implies, the company gives investors a chance to capitalise on the ultra-defensive food retail segment.
What’s more, it lets properties to the country’s largest supermarket chains like Tesco and Sainsbury’s, providing earnings with even more stability.
It explains why Supermarket Income collected 100% of the rents it was owed in the first half.
This robustness also makes the company an effective source of dividend income over the long term. And so does its classification as a real estate investment trust (REIT). Under REIT rules, the business must pay at least 90% of annual rental profits out to shareholders.
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That’s not to say Supermarket Income doesn’t have its challenges. If interest rates fail to fall significantly, the value of its portfolio will remain under the cosh.
But on balance, I think it could be a great low-risk buy for investors to consider. And what’s more, at current prices, it also looks dirt cheap. According to Hargreaves Lansdown, it trades at a 19% discount to its net asset value (NAV) per share.
