Come April, the UK State Pension will be bumped up to £241.30 per week. On an annual basis, that translates into a £12,547.60 income. Yet by investing in quality high-yield dividend stocks, the same amount can be earned potentially long before reaching the required age to claim the State Pension.
One business that might fit nicely in this category is Primary Health Properties (LSE:PHP). The UK’s largest healthcare landlord currently offers an impressive 7.2% yield – more than double FTSE 100 index funds are paying out.
So how much money needs to be invested to generate a passive income that matches the 2026 State Pension? And is buying Primary Health Properties shares even a good idea?
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Crunching the numbers
A single share of Primary Health Properties pays 7.3p in dividends. That means an investor will need to have a total of 171,885 shares in their portfolio to generate £12,547.60 in a single year. And at today’s share price, that’s going to cost roughly £173,604.
The good news is that even someone with a modest portfolio can still target this six-figure position by building it up gradually over time.
Assuming Primary Health Properties maintains its 7.2% yield, drip feeding £500 a month at this rate of return would grow beyond the £173k target within around 16 years. And that’s before factoring in any potential capital gains, which would only accelerate the journey.
Of course, this all depends on whether or not the company can keep dividends flowing. So is this actually realistic?
Is Primary Health Properties worth considering?
In terms of dividend track record, the healthcare REIT‘s pretty incredible compared to its FTSE peers. By having the NHS as its top tenant, and UK healthcare demand only rising with an ageing population, management’s benefited from extremely predictable and consistent rental income.
This exceptional level of long-term revenue visibility is how the company has hiked shareholder payouts every year for 30 years in a row. And things don’t look like they’re about to change.
With the government rolling out plans to further improve community-based care through local clinics, Primary Health Properties can continue to expand its real estate empire without having to worry about finding reliable tenants.
There’s no denying that by having most of its revenue effectively guaranteed by the British government, Primary Health Properties has been able to thrive, even during economic wobbles. However, this advantage is also a bit of a double-edged sword.
Being its largest tenant, the government has substantially more negotiating power when it comes to signing new leases. And with the NHS chronically under financial pressure, the firm has historically struggled to increase rental rates in line with the market rate, hindering growth.
So where does that leave investors?
The bottom line
Few FTSE dividends look as secure as the income offered by Primary Health Properties. And while debt on the balance sheet does constrain the group’s financial flexibility, its long-term cash flow trajectory still looks rock solid.
This makes it a potentially interesting dividend stock to consider for conservative investors seeking a dependable income stream that complements their future State Pension. But for investors hunting for more aggressive long-term dividend growth, this business may be a poor fit.
Luckily, there are plenty of other income opportunities to explore.
