I’m on the lookout for the best dividend shares to buy to turbocharge my investment portfolio. The concept of dividend compounding, where I reinvest any cash rewards I receive, can over time lead to exponential growth in my portfolio’s value
Here are two top passive income shares on my radar today that I feel are worth considering. Both of their dividend yields sail far above the FTSE 100 average of 3.6%.
5.3% dividend yield
The new Labour government plans to build 300,000 new homes each year to solve the housing crisis. But the property shortage will take years to solve, and in the meantime residential landlords like The PRS REIT (LSE:PRSR) can expect to enjoy solid profits growth.
City analysts agree, and they expect earnings here to rise 8% and 7% in the financial years to June 2025 and 2026 respectfully.
Latest data from the Office for National Statistics explains why brokers are so bullish. It shows rents in England rise 8.6% during the 12 months to June.
Build-to-rent specialists are picking up the pace of construction to tap this lucrative market, too. The PRS REIT — which recorded like-for-like rental growth of 11.1% in 2023 — grew its portfolio by 4% in the final six months of the year to take the total to 5,264.
Investing in The PRS REIT may be especially attractive for those seeking large dividends. This is thanks to its classification as a real estate investment trust (REIT). As such, it must distribute at least 90% of profits from its rental businesses to investors.
On the downside, the PRS REIT share price may stay under pressure if interest rates fail to come down. But all things considered I think it’s a great way to target a large passive income. For 2024, its dividend yield currently sits at a juicy 5.3%.
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9.7% dividend yield
FTSE 100 business M&G (LSE:MNG) faces a greater level of uncertainty in the near term. Unlike residential property, society’s need for discretionary financial services becomes strained when economic conditions are tough.
Could this threat be baked into the company’s undemanding valuation, however? I believe it is.
Today M&G trades on a forward price-to-earnings (P/E) ratio of 9.9 times. Furthermore, the company’s price-to-earnings growth (PEG) ratio of 0.1 sits well below the widely regarded value watermark of 1.
Like PRS REIT, it has significant demographic trends it can harness to sustainably and strongly grow earnings.
A rising population will drive demand for The PRS REIT’s rental homes in the coming years. For M&G, it stands to benefit from the growing number of elderly people, a segment that’s expanding faster than the broader population.
The company is undergoing a transformation programme to better capture this opportunity too. It also has a strong balance sheet it can use to meet its growth plans while also continuing to pay market-leading dividends.
M&G’s Solvency II capital ratio was 203% as of December, latest financials show. This underpins the company’s gigantic 9.7% dividend yield for 2024.
