With that in mind, it’s no surprise that so many of these stocks typically pay a chunky yield. But in 2024, this impact is only amplified, thanks to a combination of factors from investor sentiment to interest rates.

In June, Gore Street Energy Storage Fund (LSE:GSF), NextEnergy Solar Fund (LSE:NESF), and Residential Secure Income (LSE:RESI) are in the top 15 UK REITs with the most generous dividend yields offering 11.7%, 11.6%, and 10.1% payouts. Does that make them the best passive income investments right now? And what should investors be on the lookout for?

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.

The debt problem

As previously mentioned, the REIT business structure requires the lion’s share of profits to be redistributed through dividends. Consequently, the level of retained earnings for these businesses is minimal, at best.

Over the last decade, this hasn’t been much of a problem. After all, debt was cheap with interest rates sitting close to 0%. Today, the economic landscape is quite different. The Bank of England has raised rates to 5.25%, turning previously affordable debt into a ticking time bomb.

To make matters worse, the fair market value of a REIT’s assets, whether it be solar panels or residential properties, is also adversely affected by the cost of capital. All three highlighted companies have suffered a massive blow to their reported net income due to the revaluation of assets.

These losses only exist on paper (since they don’t affect cash flow). However, it also means that if a firm is forced to sell some of its assets to raise money, the transaction is going to be less than favourable, likely resulting in the destruction of firm value and shareholder wealth.

That’s why most REITs, including Gore Street, NextEnergy, and Residential Secure, are all trading at a significant discount to their net asset value. And these depressed stock valuations are a big contributor to their generous yields.

Bargains hiding in plain sight?

Despite leverage being a valid concern, the latest inflation figures suggest that an interest rate cut is coming soon. And apart from easing the pressure of existing and new debt burdens, the recovery of asset market values could quickly send REIT share prices flying.

If that’s the case, investors could be looking at an extraordinary opportunity to lock in a sustainable double-digit yield. After all, NextEnergy Solar has actually just hiked its dividend, while Gore Street’s improved cash flow is improving dividend coverage and affordability as it maintains its existing payout.

However, it’s not all sunshine and roses. Residential Secure Income has recently had to cut its payout as underlying earnings continue to suffer in the unfavourable operating environment.

As with any income investment, chasing high yields requires careful investigation. This is especially true for REITs, given their heavy dependence on external financing through debt. And while interest rate cuts are expected to improve prospects this year, all it takes is a rebound of inflation for those expectations to be thrown out of the window.

Currently, out of these three businesses, NextEnergy Solar has most of my attention. Given its superior performance and resilience, I believe the company merits a closer look for a potential investment despite the risks that come with it.

The post Are these the best 3 REITs to buy for passive income in 2024? appeared first on The Motley Fool UK.

Here’s why I’d buy the shares when I next have some investable cash!

Affordable housing

Residential Secure Income is set up as a real estate investment trust (REIT). It invests in socially affordable housing properties and rents these out to make money.

The allure of REITs is that they must return 90% of profits to shareholders. This is one of the reasons I already hold positions in a few REITs as I look to boost my passive income.

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.

Residential shares have been falling recently. I reckon this is due to macroeconomic volatility, which has hampered the property market. Over a 12-month period, the shares are down 28% from 76p at this time last year, to 54p, as I write.

The positives

Firstly, demand for affordable and social housing is sky high at present. Demand is outstripping supply by some distance. As the population ages and grows, this could be the case for a number of years yet. In addition to this, with interest rates high, getting on the property market has never been harder, therefore demand for rental properties is increasing too. All of this is positive for Residential and could help boost performance and returns.

Next, a dividend yield of 7.6% is higher than the FTSE 100 and FTSE 250 averages of 3.8% and 1.9%. However, I’m aware dividends are never guaranteed.

Finally, Residential released full-year results for the year ended 30 September 2023 back in December. I thought they were positive, but there were signs that the economic picture has impacted the firm. Rental revenue grew by 6.1% and demand for its properties remained high.

Furthermore, the business paid a final dividend of 5.16p, the same as last year, and it looks well covered too, looking at its balance sheet. However, cash generation and net asset values dropped slightly, the former due to higher costs, and the latter due to the current difficult property market. Finally, the firm’s rental collection figures came in at a whopping 99%, which is impressive.

Risks and final thoughts

Residential could find growth harder to come by. Soaring costs for house builders mean less completions across the industry. This could mean fewer properties for it to buy and rent out to make money from.

Next, although it seems the business is in a good position financially, as with most property firms, they often borrow to help growth and buy assets. Paying down debt during times of higher rates can be risky as the repayments could be higher. This could hurt Residential’s balance sheet and any payouts.

Looking at Residential’s current fundamentals, results, and future prospects, I reckon it will continue to grow. Once macroeconomic volatility subsides, these shares could really help boost my passive income.

The post One 7% yielding penny stock I like for passive income! appeared first on The Motley Fool UK.

Residential housing investment

Residential Secure Income is set up as a real estate investment trust (REIT). It develops or buys social housing assets in the UK and rents them out.

It is worth remembering that REITs are essentially property stocks and they must payout at least 90% of rent profits in the form of dividends. Most REITs are looking for long-term rental agreements that provide stable income and consistent shareholder 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.

A penny share is one that trades for less than £1. As I write, Residential shares are trading for 60p. At this time last year, they were trading for 110p, which equates to a 45% drop over a 12-month period. Soaring inflation and rising interest rates have caused many UK shares to fall in recent months.

The bull and bear case

I believe Residential is operating in a burgeoning market. Demand for social housing is nearing all-time highs. In fact, demand is far outstripping supply at present. Over 1m households in the UK are waiting for social homes, according to the charity Shelter.

Residential could capitalise here and build or invest in quality homes, and rent them out for long-term contracts and see stable earnings come in. This could boost dividends.

Speaking of passive income, Residential currently has an enticing dividend yield of 8.5%. This is very high for a penny share. In addition to this, I can see Residential has increased profits for the past four years in a row. However, I am aware that dividends are never guaranteed and past performance is not an indicator of the future.

Moving onto the bear case, soaring inflation has impacted construction materials and costs. This is bad news for Residential as it could find that rising costs take a bite out of profit margins, which underpin shareholder returns.

Next, the current cost-of-living crisis has meant that many consumers are finding it harder to pay essential bills, including rent. Residential could see some tenants experiencing difficulty paying rent. This could hinder its performance and payout levels. This is a major risk for nearly all REITs, when rent collection for a number of reasons could fall.

A penny share I’m buying

After reviewing the pros and cons, I’ve decided to buy some Residential Secure Income shares for my holdings imminently.

I believe Residential’s risks are shorter-term issues that could resolve themselves as the economy strengthens over time. I’m more buoyed by the surging demand for residential housing levels as well as the enticing passive income opportunity on offer. Residential will be yet another REIT I hold shares in soon.

The post This penny share would boost my passive income with an 8.5% yield appeared first on The Motley Fool UK.

J Sainsbury

FTSE 100-listed Sainsbury’s (LSE:SBRY) is one of the UK’s favourite supermarkets. Its reputation for quality, and the immense attraction of its Nectar loyalty scheme, mean it’s the country’s second-biggest grocer by market share.

However, the earnings outlook here is pretty bleak as the cost-of-living crisis worsens. Not even spending on essentials like food and household essentials is safe as consumers tighten their belts.

This bodes badly for Sainsbury’s as more of its customers are likely to head for discount chains. Colossal inflation meant its sales rose 10.5% in the four weeks to 14 May (according to Kantar Worldpanel data). But value chains Aldi and Lidl grew revenues 24% and 23.2% respectively, with sales helped by ongoing store expansion.

Sainsbury’s can of course slash prices to boost the top line. Indeed, it has recently announced rolling out exclusive prices to Nectar members in an effort to copy Tesco’s popular ‘Clubcard Prices’ scheme.

However, further discounting will only heap extra pressure on the retailer’s already-wafer-thin profit margins. Its retail underlying operating margin sank 41 basis points to 2.99% in the financial year to February.

This caused underlying pre-tax profit to drop 5% to £690m. And it’s difficult to see how Sainsbury’s will start growing earnings robustly again as competition in its markets heats up.

So I’m happy to ignore the retailer’s 4.7% forward dividend yield and buy other income shares.

Residential Secure Income REIT

In the current climate, buying shares in residential property companies could be a better idea. Residential Secure Income (LSE:RESI) is one such company I’m considering increasing my existing stake in.

We all need a place to live, so revenues across the private rental sector remain stable, even during tough periods like today. In fact, rent rolls are soaring right now as the market’s supply and demand imbalance worsens.

Data from the Royal Institution of Chartered Surveyors (RICS) this week showed 44% of its members witnessed increased renter demand in May. Its report also showed an increase in the number of private landlords looking to sell up and a lack of interest from new buy-to-let investors.

This is feeding into the hands of the firms like Residential Secure Income. This week the business announced a 6.2% rise in like-for-like rents between October and March, up 2% year on year.

A blend of weak housebuilding rates in the UK and a rising population means rents look set to keep rising for some time. Accordingly, I expect this UK share to keep delivering healthy profits growth and big dividends. Under real estate investment trust (REIT) rules it has to pay at least 90% of annual rental profits out in the form of dividends.

For this financial year (to September) the firm offers a large 7.6% dividend yield. Soaring construction costs could take a bite out of profits. But I still expect it to provide me with excellent long-term passive income.

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.

The post Yields up to 7.2%! Should I buy these UK dividend shares? appeared first on The Motley Fool UK.

Springfield Properties

Scottish housebuilder Springfield Properties (LSE:SPR) has seen its share price sink 40% during the past year.

Like most of its industry peers, Springfield has dropped as tough economic conditions and interest rate rises have sapped demand for new homes. The prospect of further Bank of England action amid ‘sticky’ high inflation remains a threat to the business in 2023 too.

Yet the resilience of the housebuilding industry leads me to consider adding the beaten-down builder to my portfolio today. I think earnings and dividend forecasts could be upgraded, prompting a strong share price rebound.

Taylor Wimpey is the latest major homebuilder to say that the recovery in buyer interest continues to gain momentum. On Thursday it announced its weekly net private sales rate between 1 January and 23 April came in at 0.75 per week. This was up from the 0.62 recorded between New Year’s Day and 26 February.

Springfield Properties is tipped to reduce the annual dividend 6.2p per share to 4.4p in this financial year (to May). But as market conditions likely improve, City analysts think the total reward will rise to 5.7p in fiscal 2024.

This means the builder’s healthy 5.2% dividend yield for the current 12 months rises to 6.8% for next year.

I think Springfield is a top income stock to buy and hold for the long haul. A weak pipeline of housing developments mean that Britain’s homes crunch should persist, keeping property prices moving steadily higher.

And the Scottish business remains committed to expanding to capitalise on this trend. Recent acquisitions include premium housebuilder Mactaggart & Mickel last summer and timber frame producer Timber Systems.

Residential Secure Income

Staying with the property theme, I believe investing in Residential Secure Income (LSE:RESI) is a good idea.

The soaring cost of renting a home is one reason why buyer demand at the housebuilders is picking up. Latest government statistics showed private rents in the UK rose 4.7% on average in the year to February. This was up from 4.4% in the 12 months to January.

Rents are rising even more strongly at Residential Secure Income too. This is thanks to its focus on the particularly strong family homes sector. Rents here leapt 5.3% in the three months to December.

Just like in the home purchase market, the supply/demand imbalance across the rentals segment looks set to endure too. A growing exodus of buy-to-let investors is making this worse.

Like at Springfield Properties, profits at Residential Secure Income are being affected by elevated levels of build cost inflation. But on balance, I still expect earnings here to rise strongly in the years ahead.

Today, the real estate investment trust (REIT) carries a meaty 7.8% dividend yield for the year to September. I’d use recent share price weakness here as an opportunity to buy. Its shares have fallen 38% during the past 12 months.

The post 7.8% and 6.8% dividend yields! 2 beaten-down UK stocks I’d buy in May appeared first on The Motley Fool UK.

I don’t have bottomless reserves of cash. But here are three more of these property stocks I’m looking to buy if I have spare money to invest.

Residential Secure Income

I think Residential Secure Income (LSE: RESI) could be a perfect pick for these uncertain times. As the name suggests, this REIT specialises in renting out residential accommodation. Having a roof over our heads is one of life’s necessities and so income here remains stable at all points of the economic cycle.

I’d also buy the UK share because private rents in the UK are booming. Estate agent Hamptons says that tenants in England and Wales spent a record £71.5bn on rent in 2022, driven in part by rising rental costs. I expect this trend to continue too as Britain’s property shortage drags on.

Today, Residential Secure Income carries a healthy 5.6% dividend yield. I’d buy it even though high construction costs may remain a big problem in 2023.

Empiric Student Property

Student accommodation provider Empiric Student Property (LSE: ESP) offers excellent all-round value right now. It carries a 4% dividend yield for 2023 and trades on a price-to-earnings growth (PEG) ratio of 0.6. Any reading below 1 shows that a stock is undervalued.

The UK is also suffering from a shortage of quality student rental property. A weak development pipeline — allied with predictions of growing student numbers — suggests the problem will get worse in the years ahead too. So rents at Empiric should keep growing strongly.

Changes to immigration policy affecting foreign students could dent the firm’s future earnings. But right now, the business looks set for strong long-term profits growth.

Big Yellow Group

Self-storage specialists like Big Yellow Group (LSE: BYG) aren’t immune to tough economic conditions. Earnings could suffer if consumers scale back spending on extra space. Demand from small online retailers for stock storage might also dip if shoppers tighten their belts.

But as a long-term investor, I’m still tempted to buy this REIT. This is because Britain’s self-storage market has plenty of room for growth over the next decade, at least. Population growth, smaller living spaces, and the rise of e-commerce will all drive need for additional storage space.

Big Yellow is rapidly expanding to make the most of this opportunity too. It added an extra 191,000 sq ft of space to its portfolio between April and September. It also has 11 sites in development with a total capacity of around 900,000 sq ft.

Today, the FTSE 250 firm sports a 3.8% dividend yield, well above the 3% index average. I expect it to deliver market-beating dividends long into the future.

The post 3 REITs I’d buy to boost my passive income in 2023! appeared first on The Motley Fool UK.

This gives a UK share investor like me a wide selection of these income-boosting property stocks to choose from.

Passive income boosters

I think investing in ‘bricks and mortar’ stocks is a particularly good idea in this period of huge uncertainty. Broadly speaking, rental incomes tend to be stable at all points of the economic cycle. And because the broader property market appreciates in value over time, they’re a great choice for long-term investors, too.

REITs more specifically are set up to be an easy and profitable alternative to directly investing in property. Their status means they don’t have to pay corporation tax on profits and capital gains on their rental businesses. In exchange they are required to pay 90% of their annual earnings out by way of dividends.

Two REITs I already own

I’ve bought care home operator Target Healthcare REIT to boost the income I receive from my own portfolio.

Like any property stock, I don’t have control over what assets my capital is used to buy. And this creates additional risk. But I’m confident that soaring demand for specialist elderly living over the next decade will deliver terrific returns and healthy long-term passive income.

Tritax Big Box REIT is another great real estate stock I own. I bought the warehouse and distribution centre specialist to capitalise on changing shopper habits. The growth of e-commerce means the need for these sorts of properties is soaring.

This is another advantage of investing in property stocks like REITs. I have the opportunity to invest in areas of the property market I wouldn’t be able to touch otherwise.

Okay, tough economic conditions could strike demand for so-called big box properties in the near term. But over the next decade this is a market tipped for fast growth.

I’m confident both of these high dividend stocks will make me a healthy passive income. Target and Tritax’s dividend yields currently sit at 7.7% and 5.2% respectively.

… and one more on my shopping list

Residential Secure Income REIT (LSE: RESI) is another specialist property stock I’m considering buying.

This residential property share specialises in affordable shared ownership and retirement rental properties. This gives it access to two white-hot growth markets.

There are huge shortages of affordable homes in the UK. Weak housebuilding rates mean that this supply and demand imbalance looks set to last, too. So the prices Residential Secure Income asks for its properties can be expected to keep climbing.

I also like the REIT’s exposure to the rapidly expanding retirement property sector. This could deliver big returns as the general population gets older.

I think it’s a top buy despite the threat rising interest rates pose to homes sales in the immediate future. And especially as it offers great all-round value now.

The business currently offers a bulky 5.5% dividend yield. It also trades on a forward price-to-earnings (P/E) ratio of just 17.4 times, well below its historical average north of 20 times.

The post 3 high-dividend REITs that could deliver a lifetime of passive income! appeared first on The Motley Fool UK.

Residential Secure Income REIT

I think REITs can be a great way to secure a reliable second income. In exchange for certain tax advantages, these businesses are obligated to pay 90% of annual profits out in the form of dividends.

Residential Secure Income REIT (LSE: RESI) is one such stock on my radar today. This UK share invests in residential rental properties and shared ownership homes. As a consequence I expect profits to boom as private rents charge higher.

To illustrate this point, estate agent Hamptons thinks rent increases will outpace home price rises over the next four years. It reckons tenant costs will rise 5% in both 2023 and 2024.

Rising construction costs pose a danger to Residential Secure Income REIT’s earnings. But I think the prospect of prolonged and powerful rents growth, driven by Britain’s long-running accommodation shortage, still makes it a great buy in September.

The real estate stock carries a tasty 4.7% dividend yield for the financial year ending September 2022. The dial improves to 4.8% for the upcoming year too.

Vodafone Group

Huge uncertainty surrounds Vodafone Group (LSE: VOD) as activist investor Cevian Capital pushes for change. A range of revolutionary measures, from significant boardroom changes to major consolidation in several European markets, are all reportedly on Cevian’s ‘to do’ list for the telecoms firm.

This could give Vodafone’s share price a welcome jolt after years of underperformance. But the scale the overhaul Cevian is planning also creates extra risks for shareholders.

Consolidation, for example, brings a range of dangers that could erode shareholder value. In fact, a rush for mergers and acquisitions in recent times raises raises the threat of Vodafone paying over the odds to expand.

That being said, there are still plenty of reasons to be optimistic about the FTSE 100 firm. It’s rapidly expanding its position in fast-growing areas like 5G and full-fibre broadband.

Vodafone also has a large footprint in Africa where it provides telecoms and mobile money services to around 238m customers. Africa is widely tipped to be the fastest-growing telecoms market in the world over the next two decades thanks to climbing personal wealth levels and low product penetration.

I especially like Vodafone because of its credentials as an income stock. Its lofty position in the ultra-defensive telecoms sector means that it should deliver solid dividend income during good times and bad.

The company is also a mighty cash generator. As well as giving it the means to invest in its operations for growth, this gives it the financial headroom to dole out large dividend payments year after year.

Speaking of which, Vodafone currently carries a mighty 6.7% dividend yield for this financial year (to March 2023).

The post 2 high-dividend UK shares I’d buy for a second income! appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Residential Secure Income REIT 

What it does: Residential Secure Income REIT invests in residential rental properties and shared ownership homes.

By Royston Wild. The economic outlook remains extremely uncertain right now. It’s why I think buying classic defensive stocks, like residential property rentals business Residential Secure Income REIT (LSE: RESI), is still an attractive idea. 

But don’t think of this UK share as simply a reliable share to own in difficult times. A widening supply and demand imbalance means that rental income at the real estate investment trust (REIT) looks set to soar. 

This explains why City analysts expect earnings to rise 20% this fiscal year (to September 2022). They predict an 8% bottom-line increase for next year, too. 

Data from Hamptons shows that rent growth in the UK remains super strong despite deteriorating economic conditions. Average rents rose 8.3% year on year in August. Last month’s increase was also the sixth largest yearly increase over the past decade. 

Rising interest rates pose a threat to Residential Secure Income’s shared ownership operations. However, I believe the prospect of a long-running shortage of rental homes still makes these shares a top buy for investors. 

Royston Wild does not own shares in Residential Secure Income REIT. 

Scottish Mortgage Investment Trust 

What it does: SMT is an investment manager primarily trading consumer, healthcare and technology stocks.

By Hamish Cassidy. The Scottish Mortgage share price has had a rough year so far, falling 32% since January. However, the stock has been steadily rising since June, and I think it’s set to climb higher this September. 

The company’s FY22 results reported £12.5bn in total assets. Exposure to the tech sector increased, now accounting for 25% of SMT’s portfolio. With tech giants such as Tesla and Nvidia gaining strong momentum last month, I think September looks hopeful.

Consumer spending has dropped due to the cost-of-living crisis. SMT has felt the effects of this, given that consumer discretionary stocks hold the majority of its portfolio at 33.5%. However, a strong turnaround in cash inflows from financing (increasing £1.2bn) suggests SMT can excel through the remainder of this year. 

I think the fund is very cheap at 880p. The stock looks like a great long-term addition to my September portfolio.

Hamish Cassidy owns shares in Scottish Mortgage Investment Trust.

Imperial Brands

What it does: Imperial Brands is a consumer goods company selling a range of cigarettes, fine cut and smokeless tobaccos and papers

By Paul Summers: Imperial Brands (LSE:IMB) has had a stellar year relative to most UK stocks. Not that this is all that surprising. Thanks to the addictive nature of what it sells, it was only a matter of time before even growth-focused investors saw it as a great option for parking their cash while the economic clouds pass.

I wonder if there could be more gains ahead. After all, the shares still look cheap at seven times forecast earnings. A 7.4% dividend yield is also enticing considering just how high inflation is expected to rise over the next few months.

There’s clearly still risk here. Cigarette volumes are in decline and regulators are never far away. We could also see some profit taking at some point. 

So long as I spread my cash around other sectors, however, I reckon Imperial will remain one of the best defensive shares around to buy.

Paul Summers has no position in Imperial Brands.

Diploma

What it does: Diploma is a distributor of industrial parts specialising in seals, controls, and healthcare equipment.

By Stephen Wright. In my view, Diploma (LSE:DPML) is one of the best UK stocks to buy at any time. The underlying business generates strong returns and has a significant advantage over its competitors.

One of the things I love about Diploma is the fact that it doesn’t have factories and expensive plants to maintain. This is because it distributes industrial components, rather than manufacturing them.

As a result, the business generates significant amounts of cash. 92% of the cash the business brings in becomes free cash available to the company.

This is an attractive business, but it can’t be easily emulated. Diploma’s scale and the size of its inventory give it an advantage over the competition.

Its customers know that Diploma can likely get parts to them quickly and more efficiently than anyone else. That’s what sets the business apart and means that its cash flows are — in my view — likely to prove durable.

Stephen Wright does not own shares in Diploma.

BT

What it does: BT is a UK-based multinational telecoms company operating in over 180 countries.

By Dylan Hood. Rising inflation and interest rates have weighed down on stock market valuations. BT (LSE:BT-A) shares have fallen 9% year to date, and over 20% in the past six months because of this. However, when I look at BT’s underlying business, not much has changed.

The group reported a small drop in profits in its Q1 FY23 results, however, in my opinion investors overreacted to this news. The firm is still on track with its Openreach roll out, which is now in over 7m homes, and its 5G network now covers over half the UK. In addition to this, the stock trades at a much lower price-to-earnings ratio (12 compared to 20) than its biggest competitor, Vodafone. BT’s asset-rich nature also means that it can act as a hedge against inflation.

Considering all of these factors, I think that BT shares looks like they could be a solid buy for my portfolio in September.

Dylan Hood does not own shares in BT

InterContinental Hotels Group

What it does: IHG is a hospitality company that owns a number of hotel brands including InterContinental, Holiday Inn, and Kimpton.

By Edward Sheldon, CFA. There are two main reasons I’ve chosen InterContinental Hotels Group (LSE: IHG) — a travel stock — as my top pick this month.

The first is that right now, we’re seeing a massive shift in the way consumers spend their money. Instead of buying goods, like they did during the pandemic, consumers are now spending their money on services. And the travel industry is benefitting. This is illustrated by IHG’s recent H1 results. For the six months to 30 June, revenue was up 53% year on year.

The second is that the company has pricing power due to its strong brands. The ability to raise prices should help it offset inflation.

The big risk to my investment thesis is that consumer spending slows down significantly due to the cost-of-living crisis. This could have a negative impact on sales.

However, with the shares trading at just 18 times next year’s earnings forecast, I think the risk/reward proposition here to buy into is quite attractive at present.

Edward Sheldon has no position in InterContinental Hotels Group.

Hikma Pharmaceuticals

What it does: Hikma Pharmaceuticals focuses on manufacturing and selling generic, branded, injectable, and in-licensed medicines.

By Zaven Boyrazian. Hikma Pharmaceuticals (LSE:HIK) is a world-leading generics pharmaceutical business. The firm focuses on recreating existing drugs and treatments that have come off-patent to improve availability and affordability for patients.

Lately, the stock has taken a bit of beating on fears of rising competition in the United States, causing profitability to suffer. In fact, over the last 12 months, the share price has fallen by almost 50%.

However, management is in the process of ramping up investments into its high-margin injectables business. And with its branded products continuing to deliver double-digit profit growth offsetting the recent losses, I feel investors may have overreacted.

Demand for healthcare isn’t likely to disappear any time soon. Even during a recession, when consumer spending is dropping, access to medicine is still a top priority for most patients. Therefore, I feel the recent drop in the share price presents my portfolio with a lucrative buying opportunity this month.

Zaven Boyrazian does not own shares in Hikma Pharmaceuticals.

Lloyds Banking Group

What it does: Lloyds is a FTSE 100 banking group and one of the UK’s largest mortgage lenders. 

By Charlie Keough. My top British stock for September is Lloyds (LSE: LLOY). The stock has been pushed down this year as inflationary pressures have weighed on investor sentiment. And trading for below 50p, I see real value in the Lloyds share price.  

Firstly, a hike in interest rates will benefit the business. With the Bank of England recently setting rates at 1.75%, the firm will be able to charge customers more when borrowing. With the Bank looking like they could hike rates further, this is good news for Lloyds. 

On top of this, the stock also offers a higher-than-average dividend yield when compared to the FTSE 100. 

Lloyds could suffer from a slowdown in the housing market. After surging in recent times, the market has hit the brakes. As a mortgage lender, this could spell trouble. 

However, the business has made moves to diversify such as through its rental venture, Citra Living. And with a strong dividend and long-term outlook, I’d buy some shares today.  

Charlie Keough does not own shares in Lloyds.

Persimmon

What it does: Persimmon is engaged in the homebuilding business. It operates under three different brands across the entire United Kingdom.

By Andrew Woods. The shares in Persimmon (LSE:PSN) have been volatile of late, down 31% in the last three months.

In a report for the six months to 30 June, the firm reiterated that it was targeting completions between 14,500 and 15,000 for 2022. In addition, it stated that there was still strong demand for houses, reporting a forward-sales rate of 90%.

However, first-half revenue and underlying operating profit declined by 8.2% and 8.8%, respectively.

There’s also the issue of rising interest rates. This is currently set at 1.75% in the UK and may climb higher. What this potentially means is that it becomes more expensive for customers to take out mortgages. This may lead to a slowdown in the housing market and that could be bad news for Persimmon.

Nevertheless, the company has total cash of £660m and debt of just £8.3m. This gives me hope that it could easily weather any storm that comes its way in the short term.

Andrew Woods has no position in Persimmon.

ITV

What it does: ITV makes and distributes content across television and digital platforms, as well as providing facilities for third party content creators.

By Christopher Ruane. I thought the interim results released by ITV (LSE: ITV) in July made for good reading. Total revenue grew 16% compared to the same period the prior year, while external revenue was up 8% and statutory earnings per share doubled. The company affirmed its commitment to an annual dividend of at least 5p per share, which means the prospective dividend yield is now around 7.8%.

Despite that, the ITV share price has continued to drift. It now sits 45% below where it was a year ago.

Long-term structural decline in television audiences remains a threat to both revenues and profits at the business. However, ITV is in growth mode and the digital world offers lots of room for expansion. It continues to generate substantial free cash flows and I expect that to continue in coming years. I would happily buy more ITV shares to my portfolio in September.

Christopher Ruane owns shares in ITV.

Unilever

What it does: Unilever is a fast-moving consumer goods conglomerate that produces beauty products, personal care, foods, and cleaning agents. Its brands include Lynx, Ben & Jerry’s, Dove, and many more.

By John Choong. Consumers are always going to need household products, even when prices are at an all-time high. This is why I think Unilever (LSE: ULVR) is a healthy choice for my portfolio. The demand inelasticity surrounding the majority of its products means that sales figures are unlikely to get hit too badly.

This was reflected in its most recent earnings report where CEO Alan Jope revised the company’s earnings guidance upwards. The FTSE 100 giant now expects underlying sales growth for 2022 to top 6.5%, which is excellent news given the decline in retail sales data. Additionally, the conglomerate’s geographical diversity should protect its top line from declining British and European sales figures.

Therefore, Unilever shares would serve my portfolio as a defensive play as the UK enters into a recession. Its price target of £40.81 doesn’t provide much of an upside. However, it brings me a little bit more security knowing that the likelihood of my money declining by double-digit percentages is low.

John Choong has no position in Unilever

The post Best British shares to buy in September appeared first on The Motley Fool UK.

It’s my belief that the dividend yields of many UK shares are too good to miss. The sinking stock market has sent yields across the London Stock Exchange through the roof.

However, I need to consider carefully where to invest my money as the global economy stalls. Worsening conditions could derail the dividend forecasts of many income stocks.

These are difficult times for investors. As the head of BlackRock Larry Fink recently commented:

“the first half of 2022 brought an investment environment that we have not seen in decades. Investors are simultaneously navigating high inflation, rising rates and the worst start to the year for both stocks and bonds in half a century, with global equity and fixed income indexes down 20% and 10% respectively.”

A high-dividend stock to buy

With this in mind let’s take a look at residential lettings business Residential Secure Income REIT (LSE: REIT).

Right now the business carries a healthy 5% forward dividend yield. It’s a reading that is more than double the 2% yield on offer from industry rival Grainger, for instance, and much higher than the 3.5% average that FTSE 100 shares currently boast.

The residential rentals market is one of safest places that I can park my cash right now. Spending on accommodation is something almost all of us will continue doing even as economic conditions worsen. As a consequence, profits at companies like Residential Secure Income should remain quite stable.

Furthermore, with rents soaring in the UK, I can expect to make a decent return on my money if I invest it the right way. Estate agency Hamptons believes tenants will pay £63bn worth of rent in 2022, a new all-time high. This is almost double the £32.1bn paid out in 2009.

Residential Secure Income’s earnings prospects could take a hit if it fails to secure decent acquisitions in the coming years. But the rate at which rents are tipped to keep soaring fills me with confidence.

Rocketing rents

Rents in the UK have surged due to a combination of falling homes supply and rocketing demand. And the need for private rented homes looks set to keep surging due to demographic changes, a positive signal for landlords.

Analysts at Capital Economics for instance believe the key 15-to-24-year-old population will grow by around 866,000 (or 11%) by 2030.

Residential Secure Income REIT then looks in great shape to deliver solid long-term profits growth. And this is good news for income investors as its status as a real estate investment trust requires it to pay nine-tenths of yearly earnings out by way of dividends.

The post A high-dividend stock I’d buy in August! appeared first on The Motley Fool UK.