I love investing in passive income stocks. It’s not that I use the dividends I receive to fund my lifestyle. Well, not yet at least. It’s that reinvesting the cash I receive can significantly growth the size of my eventual pension pot.
For me, the London stock market’s the best place to find dividend-paying shares. It’s packed with market leaders whose strong cash flows and diverse income streams deliver juicy dividends year after year. And here’s the kicker: after years of share price underperformance, the dividend yields on many of these winning stocks are currently sky high.
Take Primary Health Properties (LSE:PHP). This FTSE 250 dividend hero carries yields approaching 8% for both of the next two years. The result? Investing in £20,000 in a Stocks and Shares ISA could earn you more than £3,000 in dividends just this year, completely free of tax.
In great health
Primary Health Properties is in fact a personal favourite of mine. It’s also one of the largest holdings in my passive income portfolio after I increased my holdings last month.
So what makes it such a dividend winner? There are multiple reasons, including:
- 29 straight years of payout growth.
- Its focus on the non-cyclical medical property market.
- Long-term contracts backed by government bodies, meaning reliable cash flows.
- A broad range of properties in the UK and Ireland (1,142 in total).
- Inflation-linked rental agreeements that protect earnings and dividends from rising costs.
What really sets Primary Health apart — and leads to its huge dividend yields for 2026 and 2027 — is its status as a real-estate investment trust (or REIT). Under sector rules, at least 90% of profits from rental operations must be paid out to shareholders. That’s in exchange for tax breaks.
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.
What’s the catch?
So what’s the downside to buying Primary Health shares for income? If interest rates rise, the firm’s cost of borrowing could increase when refinancing takes place, hitting earnings and dividends later down the line.
The FTSE 250 company also relies heavily on borrowing to grow its portfolio through developments and acquisitions. If debt costs increase, the business could pull back on its expansion plans, impacting long-term profit and dividend growth.
The good news is Primary Health is on track to significantly reduce its loan-to-value (LTV) ratio this year. This was recently at 57%, reflecting its acquisition of rival Assura last year. But this should fall to a more sustainable 40% to 50% later this year as asset sales and cost synergies kick in.
Let’s talk dividends
For 2026, Primary Health is tipped to pay a dividend of 7.3p per share, marking the 30th straight yearly increase. Another hike to 7.5p is forecast by analysts for 2027, too. The result? Enormous dividend yields of 7.8% and 7.9% for this year and next respectively.
All this means £20,000 worth of Primary Health shares in an ISA today could make you £3,271 worth of dividends tax free. That’s assuming 2026’s payouts are reinvested. I expect the company to remain one of the UK’s best passive income stocks for years to come.
