Yields up to 8.7%! 3 high-yield dividend shares I’d buy to target a £1,000 passive income

A lump sum invested in these high-yield shares could create a four-figure passive income this year and a growing one over time, Royston Wild explains.

| More on:

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.

Investing in high-yield shares can be a great way to build long-term wealth. By targeting and then reinvesting large dividends, I can effectively harness the power of compounding. This can exponentially grow the size of my portfolio over time.

The London stock market is packed with excellent stocks with sizeable dividends today. Here are three of my favourites. Each of their forward dividend yields smashes the FTSE 100 average of 3.6%.

CompanyForward dividend yield
Foresight Solar Fund Limited (LSE:FSFL)8.7%
The PRS REIT (LSE:PRSR)4%
TBC Bank Group (LSE:TBCG)8.3%

If I invested £14,300 equally across these three dividend shares, I’d enjoy a £1,000 passive income this year. But remember that this assumes that broker projections are accurate.

Here’s why I’d buy these companies if I had cash ready to invest today.

Sun king

Power generators like Foresight Solar Fund can be excellent sources of dividend income over time. The stable nature of energy demand means that earnings tend to remain stable regardless of broader economic conditions.

But why choose this particular electricity producer? One reason is that near-9% dividend yield. Another is that the business — which owns solar power assets in the UK, Spain, and Australia — has significant growth potential as demand for clean energy accelerates.

There are drawbacks here. Keeping solar panels in good working order can be extremely capital intensive. What’s more, energy production can dip during periods of poor weather.

But on balance, I think it’s a solid defensive stock for dividend income.

Safe as houses

High interest rates pose a danger to real estate stocks like PRS REIT. They depress the value of their assets and push up loan costs, both of which impact earnings.

Yet I believe its other qualities make the property powerhouse a top income stock. For one, its focus on the residential sector means it enjoys a steady flow of income at all times. It collected 100% of the rents it was owed in the September quarter, for instance.

Soaring rents are another reason I like PRS REIT. Like-for-like rental growth was an impressive 12% in the 12 months to September, reflecting the UK’s huge homes shortage.

Finally, under REIT rules, the company must distribute nine-tenths of annual rental profits by way of dividends. This gives investors even more reason to expect big 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.

Another 8%+ dividend yield

While I’m a big fan of PRS REIT, emerging market bank TBC Bank might be a better option for investors seeking spectacular dividend income to consider. At above 8%, its yield for this year is twice the level of the property giant’s.

The downside, however, is that earnings here tend to fluctuate more over time. When Georgia’s economy struggles, profits across the country’s banking sector tend to sink.

That said, while dividends are never guaranteed, there are no obvious dangers to the bank’s dividends in the near term. This is thanks to TBC’s capital position (its CET1 ratio was 16.8% as of June, well above regulatory requirements).

I think earnings and dividends here could rise strongly over the long term, driven by blistering economic growth in Georgia.

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 recommended Foresight Solar Fund. 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

Is the Rolls-Royce share price too high? Here’s what the experts say

The Rolls-Royce share price has surged over two years, representing one of the FTSE 100’s greatest success stories. But is…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

A top S&P 500 growth share and an ETF I’d buy this November!

I think this S&P 500 share and exchange-traded fund (ETF) could be brilliant additions to my ISA or SIPP right…

Read more »

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »

Investing Articles

I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000

Our writer sees an opportunity to earn a substantial second income by investing in this UK insurance giant. Here’s his…

Read more »