Working a second job is a time-heavy but cash-free way of generating extra earnings. Investing in dividend shares flips that equation – it requires little spare time but a steady flow of cash.

Yet time still plays a huge role. The more invested upfront, the less time it takes before meaningful returns begin to flow in. 

The real question is, what’s the optimal balance?

A path to financial freedom

The first step is deciding how much to contribute each month. Some people are naturally frugal, while others struggle to save. But I believe everybody should be able to put aside around 10% of monthly earnings. I think this should be considered the bare minimum for serious investors.

With the average UK monthly salary of £3,000, that would mean contributing £300 each month to investing. Sinking that into a dividend-rich portfolio with market average growth and a yield of 7%, the pot could reach roughly £58,000 in a decade (with dividends reinvested). At that stage, the portfolio would be paying out more in dividends than the monthly contributions. 

But don’t stop there – at break-even, things are just warming up. Another decade and we could be looking at £1,000 a month in dividends – more than enough to supplement a State Pension.

A higher earner might manage £500 a month, building closer to £100,000 over 10 years and generating around £580 a month in dividends. That’s the equivalent of a part-time job without clocking on a single shift.

Another decade and it would have compounded to over £330,000, paying almost £2,000 in dividends. Now that’s enough for a comfortable retirement!

Picking the best dividend stocks

Some attractive high-yielding UK stocks include Assura (LSE: AGR), OSB Group, Land Securities Group and Supermarket Income REIT. All currently offer yields of around 7%, backed by solid dividend coverage and long records of consistent payments.

I’m particularly keen on real estate investment trusts (REITs) such as Assura. Due to favourable regulations, REITs must distribute 90% of profits to shareholders. That makes their dividends more reliable than most. The drawback, of course, is that it leaves less room for reinvestment and growth.

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.

Even so, Assura’s a standout. The business delivers high margins and a return on equity of 10.66%. And despite the share price climbing 23% so far this year, it still looks undervalued. Trading at just 47.4p per share, the stock changes hands at only eight times earnings – less than half the UK market average.

So what’s the catch?

The obvious risk is exposure to the UK property market, which hurt the stock in recent years. If commercial real estate weakens again, rental income could fall, threatening the dividends that investors rely on. Slow growth’s another consideration – REITs rarely deliver blockbuster capital gains.

Still, for those seeking a reliable second income without sacrificing too much time, I think dividend stocks like Assura are worth considering. Sure, it’s no Rolls-Royce, but remember, slow and steady wins the race.

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But building a second income doesn’t require risking a small fortune in speculative bets on confusing tech stocks. In fact, even a small amount invested regularly – say, £5 a day – could, over time, generate a reliable income stream.

A good place to start might be the FTSE 100 or FTSE 250 — both homes to a number of stable, dividend-paying companies. These firms often have longstanding dividend policies and are well-suited to investors seeking predictable returns. 

Healthy returns

Income-focused investors may want to consider FTSE 250 dividend stocks like Assura (LSE: AGR), for example. This real estate investment trust (REIT) owns and manages GP surgeries and primary healthcare facilities across the UK. 

It has established itself as a strong candidate for income investors, boasting a dividend yield typically between 6-8%. Better yet, it has increased its payout for 12 consecutive years — not something many companies can claim.

Adding to its appeal is a set of solid financials. Its payout ratio sits at a conservative 64%, showing dividends aren’t being stretched beyond earnings. Operating margins top 80% and its balance sheet looks solid, with debt comfortably covered by equity. 

And with a price-to-earnings (P/E) ratio of 9.5 and a price-to-book (P/B) ratio of 0.99, it looks undervalued at the current price.

Of course, no investment’s without risk. For Assura, higher interest rates are the main concern. Debt costs have risen and, as a property owner, the trust’s funding structure is exposed to these changes. When interest rates rise, the cost of servicing this debt increases, which can reduce profitability and put pressure on dividend payments.

However, with a focus on essential infrastructure, I’d say its rental income’s generally more stable than many other REITs.

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.

Building income

Which brings us to income generation. What happens if an investor contributes £1,825 a year (just £5 a day) to a diversified dividend portfolio full of stocks like Assura?

Assuming an average annual yield of 6% and market growth of 3%, that portfolio could grow to around £32,000 in 10 years (with dividends reinvested). That sum could be generating £1,554 a year in income by then — a moderate £130 a month. Over 20 years, it could snowball to almost £100,000, delivering £6,000 a year in passive income.

This shows the quiet power of compounding. Small amounts, invested steadily, can build a second income that grows and pays out without having to sell shares.

In uncertain times, that kind of resilience is hard to ignore. For investors with a long-term mindset, FTSE dividend stocks like Assura are worth considering. They offer a simple yet powerful route to better financial security, all with just a fiver a day.

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The case for growth shares

Buying growth shares could be more attractive than income stocks in the current market environment due to shifting macroeconomic dynamics. We’re in a position in the UK where the economy is stabilising and interest rate cuts remain on the horizon. Historically, in such situations, growth stocks tend to perform very well.

The boost from lower interest rates means that debt becomes more affordable, allowing such companies to fuel growth more quickly. Lower rates and a stable economy give consumers greater confidence to make purchases, thereby pushing demand higher.

Further, growth companies are exposed to hot themes right now. This includes things such as AI, cloud computing, and renewable energy. By contrast, income stocks are typically concentrated in more mature sectors such as utilities and real-estate investment trusts (REITs). So if my focus is on the areas of real growth in the economy, I can see where I should be allocating my £2k.

However, the risk with growth stocks is that capital growth isn’t guaranteed. Of a handful of interesting companies, only one may succeed and take off. If I pick the wrong ones, I could significantly underperform the broader market return.

The case for income stocks

One of the key reasons why income shares are appealing is that the dividends can provide a more consistent source of income. Of course, a business doesn’t have to pay out dividends. However, many stocks have a strong track record of consistently paying out funds over many years.

For example, consider Assura (LSE:AGR). The REIT specialises in primary care medical properties and boasts an attractive dividend yield of 6.71%. More than that, it has 12 years of consecutive dividend growth.

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.

One reason dividends have been consistently paid is the nature of the business. The core business model is to own healthcare properties and lease them to NHS-backed tenants on long-term, inflation-linked contracts. As a result, it creates stable cash flow and revenue streams. This ultimately means the management team can be confident in making payments out to shareholders.

Of course, the business isn’t perfect. One risk is the sensitivity to interest rates. With inflation moving back higher, the Bank of England committee may need to keep rates higher for longer. This could negatively impact Assura, as the debt associated with the properties is tied to these higher rates.

Overall, I think income stocks like Assura are more appealing to me right now, and I’m thinking about buying it. I like the stability of the dividends. Even though some growth shares can be great, I think I need to be careful right now in being selective and not buying overvalued options.

The post Will I make more from putting £2k in growth shares or income stocks right now? appeared first on The Motley Fool UK.

With this in mind, here are two top shares I think are worth a close look this July.

Octopus Renewables Infrastructure Trust

Investing for growth has been more challenging for renewable energy stocks in recent times. Two major new UK wind farms — including Hornsea 4, which was to be the world’s largest offshore wind farm — have been cancelled since 2023 due to costs and supply chain issues.

Amid signs that these pressures are easing, and given the bright long-term outlook for green energy categories, I think Octopus Renewables Infrastructure Trust (LSE:ORIT) is a top stock to consider.

UK investors have a swathe of renewable energy shares to choose from today. What I like about this particular one is its diversified approach: its assets span much of Europe and Scandinavia and multiple energy sources. This helps reduce the impact of potential geographic and technological risks at group level (for instance, weak wind currents that impact energy production in Britain).

This provides added strength to a stock that already enjoys strong earnings predictability, and therefore the means to consistently pay a large and growing dividend. Indeed, cash rewards from Octopus have risen each year since it listed on the London stock market in 2020.

City analysts are confident it can keep raising dividends and pay a targeted 6.17p per share dividend in 2025. This would mark the fourth successive year of dividend growth matching the UK Consumer Price Index (CPI) target, and results in a huge 8.2% dividend yield.

Like many energy producers, Octopus Renewables looks in good shape to deliver a stable and market-beating dividend income, then. But it’s not without its risks. Its profits and share price could come fall if interest rates suddenly rise. The trust could also drop if governments’ green energy policies become less favourable.

But, on balance, I think it’s worth seriously considering an investment here.

Assura

Healthcare and real estate stocks can be among the most reliable dividend providers over time. As a major owner and operator of primary healthcare properties in the UK, Assura (LSE:AGR) allows investors to enjoy the best of both worlds.

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.

As with Octopus Renewables, this FTSE 250 dividend stock has a solid record of unbroken payout growth. This stretches back more than a decade, as its operations are largely unaffected by broader economic conditions. The government also essentially guarantees a large portfolio of its rental income.

There are risks here, too, such as interest rate dangers and changing government health policy. But things at least look stable on the latter front: in fact, demand for primary healthcare centres is rising as the NHS tries to reduce the strain on the country’s jam-packed hospitals.

Analysts expect Assura to raise its annual dividend again in the financial year to March 2026. A total payout of 3.32p is predicted, yielding 6.6%. I think this real estate investment trust (REIT) will remain a top dividend stock for years to come.

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It looks as though the firm has managed to hijack KKR’s takeover of fellow healthcare REIT Assura (LSE:AGR). And the result could be a very interesting stock for passive income investors.

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.

M&A activity

There has been a lot of interest in UK REITs over the last few months. As well as Assura, Care REIT, Warehouse REIT, and Urban Logistics REIT have all been attracting attention.

After a short bidding war, Assura announced it intended to accept a best-and-last offer of £1.7bn from a consortium led by  US investment firm KKR. But it’s now switched courses.

Officially, the preferred offer from Primary Health Properties values the company at £1.8bn. There are, however, a couple of things to keep an eye on. 

The deal involves merging the two companies to create a much bigger healthcare REIT. And Assura shareholders are set to receive the following (for each share they currently own):

• 12.5p in cash
• A 0.84p special dividend
• 0.3865 shares in the combined company

The firm currently has a market value of £1.62bn – around 10% below the proposed takeover price. But the final value of the deal depends on what happens to the Primary Health Properties share price.

With that in mind, I’m not looking for a quick win based on the deal going through. But I am interested in the combined company as a potential long-term passive income opportunity. 

Passive income

In their current forms, Assura and Primary Health Properties are very similar businesses. Both make money by owning and leasing portfolios of healthcare properties – notably GP surgeries.

There’s a slight difference in terms of the balance of state (mostly NHS) and private tenants. But combining the two clearly offers some benefits of scale for shareholders.

The similarities between the two businesses mean they also have similar risk profiles. Both use their reliable income stream to operate with unusually high debt levels. Assura and Primary Health Properties both have net debt levels roughly equal to their entire market value. That’s something investors need to factor into their calculations.

Both stocks currently have dividend yields of around 7%. So even if the combined company has to issue shares to pay off some of its debt, investors might still hope for a good return.

An aging population and the UK government’s desire to use private healthcare to try and reduce NHS waiting times should both be benefits. As a result, I think this is an interesting opportunity.

Which stock to buy?

I’ve owned shares in both Primary Health Properties and Assura in the past, but I’ve since sold both. Looking back, I think that was probably a mistake. The merger of the two companies could well be my chance to get back in. But I have a clear preference for which stock I prefer at this stage.

There’s still a risk the deal doesn’t go through. And in that situation, I expect both share prices to go back to where they were before the latest news. That means up (slightly) for Primary Health Properties and down (slightly) for Assura. So to cover that possibility, I think I prefer the former.

The post Back below £1, is this FTSE 250 stock an unmissable passive income opportunity? appeared first on The Motley Fool UK.

REIT on the money

The first stock selected was Assura (LSE:AGR). This real estate investment trust (REIT) specialises in healthcare properties. It owns and manages over 600 primary care facilities across the UK, including GP surgeries, diagnostic centres, private hospitals, and ambulance hubs.

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.

Over the past year, the share price has risen 27%, yet it still boasts a 6.68% dividend yield. ChatGPT stated it liked the business for income because, as a REIT, it has to pay out at least 90% of rental income to shareholders. Furthermore, Assura’s long-term, inflation-linked leases underpin stable cash flow, which the AI bot believes is ideal for income.

I agree with these points, but do have some concerns. Even though most leases are inflation-linked, most income comes from NHS-backed contracts. These are often capped or negotiated slowly, meaning rent uplifts can lag inflation. Further, it’s a risk to have such a concentrated amount of revenue linked in some way to government funding.

It’s not that I think the stock is under pressure for a dividend cut. But I wouldn’t rank it as one of the best FTSE 250 stocks for income right now.

A lender with large potential

The second pick was OSB Group (LSE:OSB). The stock is up 11%, with a dividend yield of 6.75%. OSB focuses on niche lending segments, notably buy-to-let, along with specialist residential and development finance. At its core, OSB makes money by adding a spread on top of the rate it can borrow at versus the interest rate it charges clients on their loans.

ChatGPT picked the stock partly based on valuation. With a price-to-earnings ratio of 6.03, it could be undervalued. In this case, an investor could buy now, and then if the share price rises (reducing the dividend yield), they would gain from this capital appreciation. Another point is the recent rebound in net profit margin, which reinforces dividend sustainability.

I’m all about sustainable dividends and agree that OSB appears in a good position. The CEO recently commented that “the group is well positioned to deliver on its guidance”, which should reflect further dividend per share growth.

However, it’s worth flagging that a business built on lending is always inherently risky. A higher default rate can materially impact the company and damage its reputation.

In spite of this, I agree with the pick for OSB Group as a stock worth considering but disagree with Assura. To me, this highlights the importance of always doing your own research!

The post I asked ChatGPT for the best FTSE 250 stocks for passive income, with these results! appeared first on The Motley Fool UK.

Assura (LSE:AGR) is one, with a 7.9% forecast dividend yield. It’s a real estate investment trust (REIT) with a portfolio of leased-out heathcare properties.

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.

Price fall halted?

The Assura share price slide of the past five years is painful. But on Monday (17 February), the stock gained 9% in a single day on news of a takeover approach.

US private equity firm Kohlberg Kravis Roberts made overtures regarding a possible cash offer at 48p per share. That’s 23% above the closing price on 14 February.

The board says the offer would “materially undervalue” the company and has rejected it.

Long-term value

Buying a dividend-paying stock only to have it bought out underneath us for cash means we’d be looking for something else to buy pretty quick. But at least we might have more cash to invest if we make a quick profit.

I wouldn’t consider it for that though, as these things have a habit of disappointing. If no deal comes off, I’d expect the share price to fall back. And we could be back to worrying about that long-term price fall again. Any kind of commercial real estate surely still faces uncertainties too.

But this tells me I’m not the only one who thinks a lot of our FTSE 250 REITs like Assura are worth considering now. At least one big US investor appears to agree.

Time for change

Zigup (LSE: ZIG) might not be a name that gets investors’ heads nodding in recognition. But it’s really just the old Redde Northgate which changed its name last year.

The new name for the vehicle rental and fleet management firm is apparently “allied to a refreshed strategic framework under the new pillars of Enable, Deliver and Grow“. I don’t really know what that means. But I do like Zigup’s 8.3% forecast dividend yield.

I’m less impressed by the 16% fall in underlying first-half earnings per share (EPS) the company posted in December. But it did say at the time that its “outlook is unchanged and remains in line with market expectations“.

Covered dividends

Those expectations include a full-year EPS fall, but a return to earnings growth in 2026. We’d be looking at a price-to-earnings ratio of eight for the 2025 year, dropping to seven on 2027 forecasts. And there’s a solid Buy consensus.

Analysts expect further dividend rises, well covered by earnings. The dividend has been growing over the long term, with just a few minor dips. Together, they make me think Zigup has to be worth considering for those wanting to build up a passive income pot.

We’re still in a tough market here with plenty of competition. And a shaky economy could put pressure on business rentals. But I think the signs look good.

The post With 7%+ dividend yields, are these among the FTSE 250’s best passive income stocks? appeared first on The Motley Fool UK.

The long story short

Before we get into things, let’s run through the story with Assura. The real-estate investment trust (REIT) has been performing poorly over the past few years. Even though the stock is only down 7% in the last year, it’s down 37% over the past three years. The decline can be linked to rising interest rates, higher borrowing costs, and weaker property valuations over this period.

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.

In part due to the low valuation, the business has attracted potential suitors to buy the firm. US private equity firm KKR has already made multiple takeover offers, which have been declined.

The latest offer, which was submitted last Thursday (13 February), valued Assura at approximately £1.56bn. This works out at roughly a 28% premium over Assura’s closing share price prior to the offer. Even with the premium, Assura’s board unanimously declined the proposal again today. The share price jumped when investors heard the news.

Why the share price bolted higher

With the rejection of an offer, some might expect the stock to fall. Yet when you think it through, the jump is warranted. When declining the offer, the board spoke about having confidence in the company’s long-term prospects and its ability to deliver value to shareholders. In other words, the management team feel they can get the business going again by themselves.

The fact that companies are offering to buy the business at a premium to the current price indicates that Assura is undervalued. Even though the rally today still leaves it below the offer price, it makes sense that the stock would move close to this level in the short term.

The action plan

I’m seriously thinking about buying the stock for my portfolio. Part of the idea here is a potential recovery in the share price. This could be enhanced if interest rates fall this year and property values tick higher. Yet the other angle is the dividend income. The current yield is 7.60%, which is well above the index average. So even if the share price takes a long time to recover, I could pick up good income in the meantime.

A risk is that another company comes in and buys the business. Even though I might make a quick buck on the sale price, it would mean that I would have to sell my stock and try to find another opportunity. Another risk is if interest rates stay evelated for longer than I expect, putting further pressure on borrowing rates for Assura.

The post This FTSE 250 value stock is up 11% today! Here’s what’s going on appeared first on The Motley Fool UK.

The stock is Assura (LSE:AGR) – a real estate investment trust (REIT) that leases a portfolio of healthcare buildings. Its rent is 81% government-funded and there’s a 9% dividend on offer.

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.

Reliable income

Assura owns 625 properties, including GP surgeries, primary care hubs, and outpatient clinics. Over 99% of the portfolio is currently occupied and the average lease has over 10 years remaining.

With the vast majority of its rent coming from either the NHS or HSE, the threat of a rent default is minimal. And the company stands to benefit from a general trend towards people living longer. 

Debt can often be an issue for REITs, but Assura is in a reasonable position. Its average cost of debt is around 3% – which isn’t bad at all with interest rates currently at 4.25%. 

While some of its debt matures in less than five years, the loans that mature first are the ones with the highest rates. In other words, it has long-term debt at relatively low costs.

In other words, Assura looks like it’s in decent shape. It operates in an industry that should be fairly resilient, it has tenants that are unlikely to default, and its balance sheet doesn’t look like a concern. 

A 9% dividend yield can often be a sign to investors there’s something to be concerned about. It isn’t immediately obvious what that might be in this case – but a closer look is more revealing.

Share count

With any company, investors need to keep an eye on the number of shares outstanding over time. In particular, they need to pay attention to whether this is going up or down. 

Other things being equal, a rising share count decreases the value of each share. As the business is divided between a higher number of shares, the amount each shareholder owns goes down.

Assura’s share count has been rising quite considerably over the last few years. Since 2019, the number of shares outstanding has grown by around 4.5% per year. 

That means investors have had to increase their investment by 4.5% each year in order to maintain their ownership in the overall firm. And that really cuts into the return from the dividend.

If this continues, investors aren’t going to be in a position to simply collect a 9% passive income return. They’re going to reinvest around half of it to stop their stake in the business reducing.

This is actually a symptom of a wider risk with Assura. Its dividend policy means it often has to raise capital through debt or equity, so there’s a real risk of the share count continuing to rise.

A huge passive income opportunity?

A stock with a 9% dividend yield often comes with a catch. And I think this is the case with Assura – while the firm distributes a lot of cash, a good amount has to be reinvested to prevent dilution.

That’s not necessarily a devastating problem. But it is something for investors to be realistic about when thinking about passive income opportunities.

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While a 25-basis-point reduction was expected, the split across the Monetary Policy Committee (MPC) raised eyebrows. Seven of the nine members voted for the 0.25% cut. But two — including ‘super hawk’ Catherine Mann — wanted an even-larger cut, to 4.25%.

Why is this significant? Well Mann has regularly voted against cuts in prior meetings, and was tipped by some to do so again today. Thursday’s change of tack suggests a change in thinking, perhaps across the entire MPC, that could lead to swingeing rate cuts in the months ahead.

Share price boost

A sharper-than-expected fall in interest rates would provide a big boost to the UK share complex on the whole. It could potentially turbocharge consumer and business spending, and bring down borrowing costs for British companies.

A strong and sustained drop in interest rates isn’t guaranteed, of course. Sticky inflation — which could be exacerbated by trade wars following US President Trump’s return — may complicate future BoE rate decisions.

But what if interest rates do fall substantially over the short-to-medium term? Here are two UK stocks I think could rise especially strongly and are worth considering.

Berkeley

Housebuilders like Berkeley (LSE:BKG) may be the most obvious beneficiaries of sharp interest rate cuts. The knock-on effect that rate reductons could have on homes demand by boosting buyer affordability may be substantial.

In this scenario, Berkeley shares could rise especially strongly in value. With a forward price-to-earnings (P/E) ratio of 10.6 times, the FTSE 100 builder is much cheaper than its blue-chip peers, which in turn could provide ample scope for price gains.

The housebuilder is, like its peers, already reaping the rewards of recent rate cuts (it said it enjoyed a “a slight [demand] uptick“ in the weeks prior to early December’s latest trading update). This could well continue.

That said, cost inflation remains an issue across the construction industry that could dampen profits. In addition, the benefit of interest rate cuts to Berkeley’s top line could be offset by a prolonged downturn for the UK economy.

But on balance, I think things could be looking up for the Footsie firm.

Assura

Real estate investment trusts (REITs) such as Assura (LSE:AGR) could also turn sharply higher if interest rates fall sharply.

Lower rates can have two significant benefits for these property stocks’ profits. First of all, they can bring down borrowing costs by giving firms an opportunity to find better refinancing deals.

This in turn can also make new developments and acquisitions for growth more financially viable.

Secondly, interest rate cuts could also give Assura’s earnings a boost by driving net asset values (NAVs) higher. The company’s portfolio valuation dropped 1% to £2.7bn in the last financial year (to March 2024), reflecting the impact of Bank of England rate rises. On a like-for-like basis its asset values reversed 4%.

NAVs have improved more recently, and further interest rate cuts would fuel this momentum.

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.

Bear in mind, though, that future changes to NHS policy could have good or bad implications for the REIT’s profits, regardless of interest rate changes.

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