I’d buy 14,290 shares of this UK dividend stock for £100 a month in passive income

Our writer shines a light on a 6.2%-yielding stock from the FTSE 250 that he’s recently been buying to generate passive income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Caucasian woman at the street withdrawing money at the ATM

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.

Investors looking to increase their passive income are truly blessed in the UK. That’s because there’s an abundance of options to choose from, both in the blue-chip FTSE 100 and mid-cap FTSE 250.

One of my favourites from the latter is BBGI Global Infrastructure (LSE: BBGI). Here’s why I recently bought a few more shares of this investment trust.

Created with Highcharts 11.4.3Bbgi Global Infrastructure PriceZoom1M3M6MYTD1Y5Y10YALL6 Sep 20196 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Stable income streams

BBGI specialises in social infrastructure projects through long-term public-private partnership and private finance initiative contracts. It has 56 portfolio assets, including motorways, bridges, hospitals, and schools.

Should you invest £1,000 in Diageo right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?

See the 6 stocks

Top 10 InvestmentsWeighting
Golden Ears Bridge (Canada)11%
Ohio River Bridges (US)10%
A7 Motorway (Germany)4%
Northern Territory Secure Facilities (Australia)4%
A1/A6 Motorway (Netherlands)4%
Victorian Correctional Facilities (Australia)4%
Liverpool & Sefton Clinics (UK)3%
M1 Westlink (UK)3%
Women’s College Hospital (Canada)3%
Poplar Affordable Housing & Recreation Centres (UK)3%
Remaining investments51%

These provide government-backed, inflation-linked income streams. Its partners are creditworthy public sector entities in countries with solid credit ratings (AA to AAA), such as Australia, Canada, Germany, the Netherlands, Norway, the UK, and US.

Geographical Split
Canada35%
UK33%
Continental Europe13%
US10%
Australia9%

While I like this geographic diversification, these are locations where interest rates are high. And this has been a headwind for BBGI as infrastructure investments and valuations are sensitive to rate changes.

Also, higher rates reduce the attractiveness of its dividend yield relative to other investments. While I expect these challenges to ease as interest rates fall, they’re worth bearing in mind. Inflation could always return.

Covered dividend

At the end of June, there was no structural gearing at group level and no cash drawings on a revolving credit facility. The trust had net cash of £20.6m.

It reaffirmed its 6% dividend growth target for FY24, with a further 2% growth planned for FY25. And it expects its cash flow to be 1.3 to 1.4 times this year’s payout. So the dividend looks secure.

Over the medium term, we expect cashflows to continue to support a healthy dividend cover and provide ample headroom to sustain a progressive dividend policy well into the future.

Non-executive chair Sarah Whitney, H1 2024 earnings report

Earning passive income

At 136p, the current share price offers an attractive forward dividend yield of 6.2%.

This means a £19,434 investment in my ISA would get me around 14,290 shares, enough to pay the equivalent of £100 a month in tax-free passive income.

Moreover, the shares are trading at a 10% discount to net asset value. This compares to a five-year average premium of about 12%. I think this stock could be a steal for long-term investors like myself.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Foolish takeaway

High levels of public debt combined with rising populations and the growing need for new infrastructure projects means specialist investors like BBGI are well-positioned to succeed.

Deglobalisation is a megatrend that will require the onshoring of US manufacturing and an increased focus on energy security, driving significant demand for private infrastructure investments.

Meanwhile, the EU is aiming for Europe to become the first climate-neutral continent. The trust says this presents “a continuous flow of pipeline opportunities in the core infrastructure space“.

Finally, the Australian government is committed to investing A$120bn on projects over 10 years.

Even without further acquisitions though, management says the portfolio could continue to generate a rising dividend for the next 15 years.

While no payout is ever truly guaranteed, I’d be very surprised if this one was scrapped. I’d happily buy more shares with spare cash for a diversified portfolio.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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 positions in Bbgi Global Infrastructure. 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

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »

Investing For Beginners

Why the FTSE 250 could outperform the FTSE 100 for the rest of the year

Jon Smith explains why the FTSE 250 could do better than its big brother when factoring in domestic exposure and…

Read more »

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

Tariff fears send the Lloyds share price tumbling, but the dividend yield is climbing

Just when the Lloyds Banking Group share price had been rising steadily, along comes a global upheaval to knock it…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how a stock market crash could help an investor retire years early

A stock market crash can be alarming -- but for the well-prepared investor, it can also be an exceptional opportunity…

Read more »

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »