Earning a high dividend yield is a superb way to generate chunky passive income from an investment portfolio. And when leveraging the power of a Stocks and Shares ISA, all of that income can be enjoyed tax-free.
What’s more, it doesn’t take a huge amount of money to get the ball rolling. A few hundred pounds is all that’s needed. But someone with a £5,000 lump sum has a lot of flexibility. And with the right stocks, it’s enough to unlock upwards of £350+ passive income overnight with a 7%+ yield.
So how can I do this?
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Earning a 7%+ yield
Right now, there are just shy of 30 companies in the FTSE 350 offering a payout of at least 7%. Some dividend stocks even venture into double-digit territory.
However, it’s important to remember that the higher the yield, the higher the risk… in most cases. It’s the job of an investor to dig deeper, understand the risk and decide whether or not it’s worth taking. And right now, there are definitely some UK shares that the market seems to be underestimating.
One such stock might be Supermarket Income REIT (LSE:SUPR). With a 7.41% dividend yield on the table, if I invest £5,000 today, I’d instantly unlock a £370.50 annual passive income. So is this a buying opportunity? Or is it a trap?
Impressive fundamentals
As the name suggests, Supermarket Income REIT is a commercial real estate landlord that leases properties to supermarkets across the UK and France.
By exclusively dealing with retail giants such as Tesco and Waitrose, the company has had no issues when it comes to rent collection. And as of 2026, all of its properties are currently occupied, generating recurring and reliable rent.
Moreover, the average duration of its leases currently spans 12 years, with 82% including inflation-linked uplifts. This has translated into exceptional cash flow visibility. And it’s how the firm’s been able to continuously hike dividends since its IPO in 2017.
So what’s the catch?
The most immediate issue is debt. Building a real estate empire isn’t cheap. And the company has been borrowing money to help cover the cost. That isn’t unusual, and the generated cash flows are more than sufficient to cover the interest payments.
Until recently, the group had £443.4m of debt maturing before July 2027. In March, this problem was partially resolved by raising capital through a bank loan secured against its joint venture property portfolio with Blue Owl Capital. Essentially, the company borrowed long-term debt to cover short-term maturities.
This has certainly helped reduce near-term refinancing risk. But it’s effectively delaying the problem rather than solving it. And at an interest rate of 5.24%, this new debt isn’t cheap, applying pressure to excess cash flows used to fund dividends.
The bottom line
With new properties recently being acquired, management projects a nice boost to its rental cash flows, helping both improve dividend and interest coverage.
There’s no denying the elevated short-term refinancing risk surrounding this business. But if the company’s successful in restructuring its debt load and continues to collect rent on time and in full, patient investors with a long-time horizon may want to take a closer look at Supermarket Income REIT and its dividend yield.
