REITs: a once-in-a-decade passive income opportunity?
As dividend yields approach their highest point in over a decade, Zaven Boyrazian thinks REITs could be a highly lucrative income investment in 2025.
Posted by
Zaven Boyrazian, CFA❯
Published 6 August
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
Real estate investment trusts (REITs) aren’t very fashionable right now. The higher interest rate environment is putting a lot of pressure on these debt-ridden businesses. But with rates steadily falling, and many continuing to generate stable cash flows, dividends are still being put in investor pockets.
The combination of dividends with lower share prices has steadily pushed yields higher over the last couple of years. As such, some yields are now starting to climb beyond 8%!
Investing in REITs
Generally speaking, most REITs own and lease rental property to tenants. Providing that 90% of net profits are redistributed to shareholders, they don’t have to pay any tax, making them highly lucrative dividend investing vehicles. However, despite the name, REITs don’t have to exclusively focus on real estate.
However, with so much profit being paid out, these businesses are often almost entirely dependent on external financing. As such, they tend to be highly leveraged enterprises. That was fine for most of the last 15 years. But when interest rates started climbing again, high debt burdens proved quite troublesome for many REITs, increasing investment risk.
Since interest rates are still relatively high, REITs remain unpopular in 2025. Yet not all of these businesses are in jeopardy, potentially giving smart investors a rare chance to lock in enormous yields.
was in second place. These ETFs charge just 0.07% a year to track the largest shares in America, nearly doubling investors’ money over the past five years.
Measured in pounds sterling, the US market is about 4% off its all-time high, with a weaker dollar hurting returns this year.
July was a good month for the US stock market, with the index rising 2% in US dollar terms and 7% in sterling terms, with dollar strength against the pound providing a boost to British investors.
rising two places to sixth. Both funds are heavily invested in US shares, with the Vanguard tracker allocating 60.5% to the US and the Nasdaq 100 allocating 96.8% to US shares.
SWDA owns around 1,400 global developed market shares and is a popular core holding for stock market exposure. The fee is 0.2% a year.
The Vanguard global trackers are “all world” funds, which means they own emerging market shares as well as developed world shares – they therefore have less invested in the US.
Over July, the gold price was relatively flat, starting the month at $3,352 an ounce and ending it at $3,295. Silver, however, rose from $36 to $37 an ounce.
Gold is seen as a safe-haven asset but also a hedge against inflation, as the supply of the metal is relatively fixed, but governments are issuing more debt and increasing the money supply.
Both metals are volatile, but silver is a much bumpier ride than gold due to its wider industrial use. This means it has greater cyclical characteristics compared to gold.
It is viewed by many as a way of getting exposure to bitcoin inside an ISA wrapper, as the UK finance watchdog currently does not allow ETFs that track the price of cryptocurrencies.
Be warned though, this ETF is extremely volatile, and often moves more than the bitcoin price itself.
Source: interactive investor, FE Analytics as of 1 August 2025. Note: the top 10 is based on the number of “buys” during the month of July. Past performance is not a guide to future performance.
All invest in equities, indicative of rising investor confidence as stock markets around the world jumped higher in July.
The best performer of the new entries over the past 12 months is Polar Capital Technology Trust, returning 30.1% and entering the list in fifth place. Managed by Ben Rogoff, it owns tech firms from around the world.
Unlike Scottish Mortgage Ord SMT, which was the most popular trust in July, it does not own unlisted technology stocks, instead taking a “benchmark-aware” approach and owning most of the largest names in the sector.
On the other hand, top-ranked Scottish Mortgage has a quarter invested in unlisted shares, such as SpaceX and TikTok-owner ByteDance.
In ninth place last month, F&C Investment Trust is also a big backer of technology stocks, with around two-thirds invested in North American shares. It is a global stocks trust, owning more than 350 companies across 35 countries, including 9.1% in emerging markets and 10% in the UK.
Seventh-placed Temple Bar follows a value investment approach, with 70% invested in UK equities and the remainder overseas, including in Asian and North American shares. Run by Ian Lance and Nick Purves, shares have risen 22.4% over the past 12 months and 72.4% over the past three years, making it one of the top-performing UK-focused funds.
The final new entry, in sixth, was Henderson Far East Income, which yields 11% by investing in Asian equities. Its biggest allocation (40%) is to financial stocks, such as banks in China. The next biggest sector is technology, where it counts Taiwanese computer chip giant TSMC among its largest positions. While the yield is appealing, total returns (capital and income) are more subdued, at 13.1% over 12 months and 14.4% over three years.
was the other riser last month, jumping one place to third. It owns UK shares with above-average dividend yields, and has a more than 50-year record of increasing its annual dividend.
was unchanged in fourth place. It is “style neutral”, meaning it does not favour value or growth, for example. It holds 50 “best idea” stocks, and looks to trim its winners and recycle the money into underperformers that it still has conviction in. The trust makes quarterly distributions with the intention of paying dividends totalling at least 4% a year.
Finally, the trusts that fell in popularity but maintained a place on the most-bought list were 3i Group Ord III
The latter two trusts own renewable energy assets, selling power to the grid and returning profits to shareholders via dividends. The yields are 8.4% and 11.3% respectively.
Source: interactive investor, FE Analytics to 30 July 2025. Note: the top 10 is based on the number of “buys” during the month of July. Past performance is not a guide to future performance.
Aberforth Geared Value & Income Trust PLC ex-dividend date Aberforth Smaller Cos Trust PLC ex-dividend date Baronsmead Second Venture Trust PLC ex-dividend date Baronsmead Venture Trust PLC ex-dividend date Chenavari Toro Income Fund Ltd ex-dividend date CVC Income & Growth EUR Ltd ex-dividend date CVC Income & Growth GBP Ltd ex-dividend date Dunedin Income Growth Investment Trust PLC ex-dividend date GCP Infrastructure Investments Ltd ex-dividend date Marwyn Value Investors Ltd ex-dividend date Monks Investment Trust PLC ex-dividend date Northern Venture Trust PLC ex-dividend date Picton Property Income Ltd ex-dividend date Polar Capital Global Financials Trust PLC ex-dividend date Polar Capital Global Healthcare Trust PLC ex-dividend date Residential Secure Income PLC ex-dividend date Taylor Maritime Ltd ex-dividend date UIL Ltd ex-dividend date
Steven Bavaria Takes Investors Inside The Income Factory
Summary
Steven Bavaria discusses his investing strategy, focusing on generating income through high-yield assets like closed-end funds and credit markets.
He emphasizes the importance of sticking with a strategy that aligns with one’s risk tolerance and long-term goals, whether it’s traditional equity investing or an income factory approach.
Bavaria recommends considering credit investments, like BDCs and CLO funds, as a favourable option in the current economic and political climate.
Rena Sherbill: Steven Bavaria, really nice to have you on one of our podcasts. Really nice to have you on Seeking Alpha. It’s been a long time coming. Appreciate you coming on the show.
Steven Bavaria: It’s a pleasure. Thank you.
RS: It’s a pleasure to have you. Like I said, you’ve been writing on Seeking Alpha for a long time. So, good to have you on finally. You now run an investing group called Inside the Income Factory.
I’d love it if we got started with how you’re approaching the markets. You’ve also written a book about it. So if you could synthesize your strategy and how you approach investing, I think, that’s a nice place to start.
SB: Sure. I guess we could start with the name of the book, The Income Factory and the service Inside the Income Factory. I started out investing like most other people, trying to make an equity return of 8%, 9%, 10%, which has been the average for the last 100 years.
And I realized over time, and this was 12, 15 years ago, that that meant you collect a dividend of 1% or 2% per annum. That would be the typical S&P 500 yield, 1% or 2%.
And you’d be counting on capital gains on average of another 7% or 8% every year. Now not always each year, but on average, every year, to get your 8%, 9%, 10% return. And that’s kind of tricky and angst-ridden for many investors because some years you’re not going to be getting it. You might even be losing money on paper. So you’d only be getting your 1% or 2%.
And since I spent my life in the credit markets as a banker and working for Standard & Poor’s and introducing ratings to the whole bank loan business, I realized that you can make interest rates in the high-yield credit market of 7%, 8%, 9%, 10% per annum.
And if you can get an interest rate of 8%, 9%, 10% per annum, even if you don’t have any growth, you’ve still got the same total return, that 8%, 9%, 10% return that equity investors are seeking to get. Many are trying to get more, but Nobel Prizes have been written by people showing that the typical person over a lifetime is lucky to make the average of 8% or 9%, 10%.
So anyway, I began to experiment and realized that I could invest in high-yield closed-end funds, all kinds of different assets that pay a steady 8%, 9%, 10%, sometimes more in markets like we’ve been in recently in interest. And if you then just get your principal back, you’ve still got your equity return, which you can compound and reinvest just like any other equity investor.
So I began to do that, and I began to write about it 10 or 12 years ago. And people called me a heretic. I’d have people say, oh no, you have to have growth stocks. You can’t grow your wealth without growth stocks. And I would show that, well, math is math. And if you can earn 8%, 9%, 10% in cash and 0% in capital gains, that’s the same 8%, 9%, 10% return as somebody who makes 8% in capital gains and 0% in cash or any combination in between.
So after a while I was – I had more and more followers who tried this and realized that, hey, from an emotional standpoint, you’re not going to make any more money or less with either approach, traditional index investing or dividend growth investing, or – and what I came to call an income factory approach, where you’re just focusing on the income and trying to make most of your total return in the form of income.
You’re not going to do better or worse than either – with either one, probably, but some people are going to be emotionally able to stick with it.
If you’re getting 8%, 9%, 10% in cash that you’re reinvesting and creating your own growth, as I would put it in a lot of my writings, then even in a down market, when you’re having paper losses or equity investors are having losses, paper or real, depending on whether they sell out or not, you’re still reinvesting and compounding your income if you’re getting it in cash.
And that can make you feel – and that can help you sleep at night, which thousands of people have told me since they sleep a lot better at night, knowing their money’s compounding and reinvesting and compounding through all kinds of markets.
And as I wrote about it more and more, and my shtick, as a writer, is basically taking complicated stuff and writing about it in plain English. I came up with this name, The Income Factory, thinking that Ford Motor, when they build a factory, a week after it’s built, the only people at Ford who worry about what its market value is as a factory are the green eye shade accountants in the back room.
But everyone else at Ford thinks more about how do you – what’s the output of that factory? How do we – and how do we grow the output of that factory on a regular basis? How do we buy more machines for the factory, make it grow as a factory in terms of its output? And I realized, hey, that’s really what I want my portfolio to do if I’m in it for the long term.
I see it as a factory whose job is to grow its income. And if it does that steadily by investing in high-yield assets, even though there’s no capital gain, I just keep on collecting that output, reinvesting it. And then later on, if you do this for enough years, hopefully, then you’ll, at some point, be able to retire.
And here again, having a portfolio that’s an income factory, as I call it, where you’re creating your output, your 8%, 9%, 10% cash output without having to sell any of your capital each year, that’s a real advantage once you become a retiree and want to live on some or all of that output, some of that income.
Because if you’re a typical equity investor collecting 1% or 2% cash each year in dividends and counting on another 7% or 8% in capital gains each year, you’re dependent on selling off some of the capital whether or not you’ve got the gains.
If you need 5% or 6% to live on, say as a retiree, and you’re only getting 2% in cash, then you’re going to have to sell, even when the market’s down, some of your capital to get what you need to – for your retirement income.
With an income factory where you’re getting 7%, 8%, 9%, 10% recently in cash every year regardless of what the price of the factory is doing, regardless of what your portfolios, paper losses or profits are, you’re not going to have to sell any capital. You’re going to get it all in cash regardless of what the market’s doing. So that, in a nutshell, is my income factory philosophy.
According to the financial firm Hargreaves Lansdown, someone earning £26,000 a year and contributing the standard 8% (5% from their earnings and 3% from their employer) to their pension from age 22 to 68 could build a fund of about £235,000. This could generate an annuity income of about £16,000 a year in retirement on top of the state pension (now £11,973 a year).
If they stopped making contributions and bought an annuity at age 57, their fund might be closer to £143,000 – reducing their annual income to about £8,000 before the state pension.
To retire at 57 with a £16,000 income from a personal pension, they would probably need to contribute about 13% of their salary throughout their working life on top of the 3% employer contribution.
To retire at 57 with a £16,000 income from a personal pension……
Using the 4% rule that would require a fund of £400,000. GL
Meet the 75p dividend stock with a higher yield than Legal & General shares
With a yield of over 10%, this UK dividend stock has the potential to be an absolute cash cow for investors. And it only costs 75p a share.
Posted by Edward Sheldon, CFA
Published 2 August
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
Dividend investors have been piling into Legal & General shares recently and it’s easy to see why. Currently, these shares offer a yield of a whopping 8.5%. There are other UK dividend stocks with higher yields than this however. Here’s one that’s currently trading for less than £1.
A 75p dividend stock
The stock in focus today is NextEnergy Solar Fund (LSE: NESF). It’s an investment company that focuses on solar energy and energy storage infrastructure (and is currently invested in over 100 assets).
Its objective is to provide shareholders with attractive returns, predominantly in the form of regular dividends. Listed on the London Stock Exchange‘s main market, it currently trades for just 75p.
A huge yield
Now, analysts’ dividend forecasts are not always accurate. And dividend payments are never guaranteed, of course.
However, for the year ending 31 March 2026, City analysts expect this stock to pay out 8.5p per share in dividends. That translates to a yield of a massive 11.3% at today’s share price of 75p, so this stock could be a cash cow.
Lots to like
Looking beyond the enormous yield here, there are several things to like about NextEnergy Solar Fund from an investment perspective, in my view.
For a start, the company’s operating in growth industries. According to Mordor Intelligence, between now and 2030, the UK solar industry is set to grow by around 19% a year. The UK energy storage market’s projected to grow at an even faster pace, with several research firms forecasting growth of around 35% a year between now and 2030. This market growth should provide a supportive backdrop for the company.
Secondly, the fund benefits from government support. In its most recent trading update, it said the majority of its long-term cash flows are inflation-linked via UK government subsidies.
Third, it’s currently trading at a significant discount to the net asset value (NAV) of its assets (meaning there could be some value on offer). At the end of June, the NAV per share was 95.1p – about 27% higher than the current share price.
Finally, the fund could be set to benefit from lower interest rates. If rates were to come down, it would most likely be looking at less interest on its debt (debt’s used to fund solar farm projects).
Worth a look?
There are plenty of risks here, of course. Dividend risk is one. Recently, dividend coverage (the ratio of earnings to dividends) has been quite low, meaning that in the years ahead, there’s a chance of a lower-than-expected payout.
Share price risk is another. Recently, sentiment towards clean energy investments hasn’t been great and this may persist.
Interest rates are also worth mentioning. If they were to rise from here, it could put pressure on profitability and impact dividend payments. However, I like the story. I think this stock’s worth considering for income as part of a diversified portfolio.
The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro.
We think earning passive income has never been easier
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
Are you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment.
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.Read More
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
Passive income has always appealed to me. Who wouldn’t want to build up a steady cash flow from solid dividend stocks while doing little more than checking their Stocks and Shares ISA from time to time?
Generating income of £2,000 a month, or £24,000 a year, won’t happen overnight. Under the 4% safe withdrawal rate (which states that your portfolio shouldn’t run dry even if you draw income for decades), it would take a hefty £600,000 to hit that income target.
If an investor upped their withdrawals to 7%, they’d earn more income but might have to dip into their pot from time to time. At that level, they’d need around £342,815 to reach their goal. That’s achievable with long-term discipline.
Digging for dividends
One way I try to reduce the size of the required pot is by focusing on high-yielding shares. Among the FTSE 100, one that stands out for income today is commercial property giant Land Securities Group (LSE: LAND), which has a trailing yield of just over 7%.
Landsec owns prime central London offices and big retail destinations across the UK. Lately, it’s had a tough run. The share price has fallen 10% over 12 months and 20% over three years.
The reasons are clear enough. High interest rates have made property less attractive, inflation has pushed up costs, and the work-from-home trend still squeezes office demand. None of these are easily fixed.
Tempting P/E ratio
In May, Landsec posted full-year EPRA earnings of £374m (after property and derivate revaluations, and profits and losses on disposals), just ahead of last year’s £371m. Occupancy reached a five-year high of 97.2%. The dividend rose just 2% to 40.4p a share. It clearly faces challenges, but now could be a tempting time to consider buying.
The stock trades on a modest price-to-earnings ratio of 11.5, which looks like reasonable value to me. If interest rates start falling and the UK economy picks up, that should help. Landsec is also making a push into residential property, which may provide more stable returns in future, although that’s no guaranteed win.
Landsec wouldn’t be my first income pick, but it could still play a role in a wider ISA income portfolio of 15 or more FTSE 100 stocks offering a mix of growth and dividends.
Dividends and growth
Of course, building up a six-figure portfolio won’t happen overnight. But it’s more achievable than it sounds with early and regular saving.
Someone starting at age 30 and investing £200 a month in a Stocks and Shares ISA could hit £354,992 by 65. That assumes 7% average annual returns, roughly in line with the FTSE 100 average. If they increased their contributions every year, in line with inflation, they should end up with a lot more, although that’s not guaranteed.
Pick the right stocks, reinvest the income and keep at it for decades. That’s my strategy. A reliable second income could be the reward — or even better, full financial independence. Either way, it all starts with a plan and a long-term approach. It’s hard to beat passive income.
Discover how to start building a long-term retirement income in a SIPP by investing intelligently in quality businesses to head towards financial freedom.
Posted by Zaven Boyrazian, CFA
Published 27 July,
Image source: Getty Images
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
When it comes to investing for retirement, few investment vehicles come close to the power of a Self-Invested Personal Pension (SIPP). Not only does it eliminate the tax burden of capital gains and dividends, but the vehicle also provides tax relief that can supercharge the wealth-building process.
So let’s say someone’s aiming for a £3,000 retirement income to combine with the British State Pension. How much do they need to invest? Let’s explore.
Breaking down the numbers
Since this is a retirement portfolio, we’re going to follow the classic 4% withdrawal rule. That means every year an investor draws down 4% of the value of their investments to live on. And if the goal is £3,000 a month, or £36,000 a year, then a pension pot will need to be worth roughly £900,000.
It goes without saying that’s a pretty large chunk of change. But thanks to the power of a SIPP, in reaching this goal just £750 each month could take slightly over 25 years – perfect timing for someone who’s just turned 40.
Let’s say someone’s paying the Basic income tax rate. That means they’re eligible for 20% tax relief on all deposits made into a SIPP. Suddenly, a £750 monthly deposit is automatically topped up to £937.50, courtesy of the British government. And investing £937.50 at an 8% annualised return for just over 25 years translates into a pension portfolio worth £900,000.
What if 25 years is too long?
Sadly, not everyone has the luxury of a long time horizon. The good news is, stock picking offers a potential solution.
Instead of relying on passive index funds, investors can opt to own individual businesses directly. There’s no denying this strategy comes with increased risk and demands far more discipline. But it’s also how investors can stumble upon big winners like 4imprint Group (LSE:FOUR).
Over the last 15 years, the marketer of promotional merchandise has delivered a massive 1,685% total return, averaging 21.2% a year. And at this rate, the journey to £900k is cut to just 13.5 years.
Still an opportunity?
With its market-cap now just over £1bn, 4imprint’s days of delivering 21% annual returns are likely behind it. But that doesn’t mean it’s not capable of surpassing the market average of 8%.
The firm has established itself as a leader within the small business community, controlling an estimated 5% of the highly fragmented promotional market. And with a highly cash generative business model and practically debt-free balance sheet, the stock continues to garner a lot of favour with institutional investors. Five out of six of them currently rate the stock as a Buy or Outperform.
However there are, of course, risks to consider. Ongoing economic pressures and supply chain disruptions make an unfavourable operating environment. And it’s why the shares have actually fallen by 38% over the last 12 months.
This volatility perfectly highlights the group’s sensitivity to the economic landscape. And should unfavourable conditions persist longer than expected, order intake’s likely to suffer, keeping the stock on its current downward trajectory.
However, with a solid track record of navigating such market conditions, I think 4imprint might still be worth a closer look for long-term SIPP investors.
