The world’s your onion. GL

£1.00 compounded at 7% doubles in ten years, better if your blended yield is higher even by one percent.

Whilst it may not be possible to re-invest your earned dividends back into your current Trusts at a yield of 7%, there is normally several unloved Trusts where their sector is out of favour u should be able to re-invest in.

A once-in-a-decade chance to buy FTSE shares for passive income.

Even with the market rally, many FTSE shares are trading at dirt cheap valuations, creating a rare opportunity to lock in higher dividends.

Zaven Boyrazian, MSc

Motley Fool

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.

FTSE shares have a solid reputation for helping investors generate significant income. With so many industry titans making the London Stock Exchange their home, dividend yields have always been generally higher in the UK compared to Europe or the US.

Even after the recent market rally, the FTSE 100 still offers a generous yield of 3.6% compared to the S&P 500’s 1.35% or the Euro Stoxx 50’s 2.9%. Digging a bit deeper reveals even better FTSE income opportunities for prudent investors to capitalise on. That’s because there are still plenty of dividend shares trading at discounted valuations, pushing yields even higher, especially in sectors like real estate.

A rare chance

Severe stock market corrections and crashes are memorable. But despite popular belief, these events are actually pretty rare.

Excluding the Covid crash in 2020, which reversed in a few months, it’s been over a decade since investors experienced a sharp downturn like 2022. And just like every correction before it, the overall stock market has bounced back aggressively. In fact, since October 2023, the FTSE 250 is up by just shy of 25%.

However, as previously mentioned, not every stock has been enjoying this rally. Some busineseses are still in recovery mode, awaiting promised interest cuts from the Bank of England.

Now that inflation is almost back on track, an interest rate cut seems to be just around the corner. And current forecasts suggest they could fall to 3.5% by the end of next year, versus 5.25% today.

What does this all mean? For real estate investment trusts (REITs) like Warehouse REIT (LSE:WHR), a slide in interest rates will improve margins, reduce balance sheet pressure, and even spark new growth. So when looking at its current share price, it begs the question of whether a buying opportunity that we may not see again for another decade has emerged.

Real estate investments in 2024

Directly investing in real estate comes with a lot of headaches. Apart from requiring a lot of initial capital to buy property, landlords need to find tenants, collect rent, and perform maintenance.

That’s where REITs have the upper hand. These companies are traded just like any other FTSE share. And they represent a portfolio of rent-generating properties managed by a team of professionals. In the case of Warehouse REIT, the firm specialises in smaller urban warehouses, often used for last-mile delivery of online orders.

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.

With a lot of debt on its books, the firm felt the pressure of aggressive rate hikes. And it was even forced to sell some of its locations in unfavourable market conditions to shore up the balance sheet. With that in mind, it’s not too surprising the stock price took a significant hit.

However, a total of £165m has been raised from disposals. This has already been put to work, reducing the interest burden. And based on its latest results, rental income’s back on the rise as demand for well-positioned warehouses ramps up while supply remains constrained.

That’s why I think a buying opportunity may have emerged for this enterprise. There are still financial pressures on its bottom line that may compromise dividends if economic conditions suddenly worsen. But assuming that interest rate cuts materialise in the near future, Warehouse’s downward slide may soon be over, I feel.

At the safer end of dividend paying Trusts. Current price to buy 104p

dividend fcast 6.87p a yield of 6.6%.

One to consider, for the ‘safer’ dividend if u are nearer to the de-accumulation stage of your plan.

How I’m targeting a £10,000 second income from dividend shares

by Stephen Wright
The Motley Fool
For me, the point of investing is to earn extra income in retirement. And both growth stocks and dividend shares can be part of that project.

I own a number of stocks that don’t pay dividends, including Amazon and JD Wetherspoon. But they’re a key part of my plan to earn £10,000 a year in passive income.

If I were getting ready to retire today, I’d want to be in a position to earn as much income as possible. And sometimes, investing in growth stocks can be the best way to get to that position.

If I’d invested £1,000 in Unilever shares five years ago, I’d have an investment worth £882, plus £138 in dividends. Investing the same amount in Bunzl would have returned £1,491 in market value alone.

If I’d bought Bunzl shares five years ago, I could sell them and buy more Unilever shares today than I’d have if I’d invested in the company half a decade ago. Crucially, I’d receive more income as a result.
Of course, I could have reinvested my dividends to compound my returns. But while that narrows the gap, it doesn’t change the fact I’d be in a better position if I’d bought the growth stock five years ago.

An alternative
My long-term aim is passive income, but I’m not ruling out growth stocks as a means for getting there. But I’m also open to buying dividend shares that I think can perform well.

Take British American Tobacco, for example. The stock currently has a 9.43% dividend yield, but the company’s share price has been falling fairly sharply since 2017.
To some extent, this might not matter. If – and it might be a big ‘if’ – the dividend is secure for the long term, a 9.43% yield’s a golden opportunity.

A £1,000 investment compounded at 9.43% a year returns £135 after five years, £212 after 10 years, and £522 after 20 years. With that kind of dividend income, I probably won’t care what the stock does.

A stock I’m buying
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 stock I’ve been buying is Primary Health Properties (LSE:PHP). The company’s a FTSE 250 real estate investment trust (REIT) that leases a portfolio of GP surgeries – mostly to the NHS.

The steady trend of increasing life expectancy in the UK should mean strong demand for its buildings in future. However, as is always the case with investing, there are risks for investors to think about.

Primary Health Properties has a record of increasing its dividend each year for over 25 years. But the amount of debt on its balance sheet might make maintaining this impossible in the future.

From an income perspective, any disruption to the dividend (which currently amounts to a 6% yield) would be unwelcome. But the company’s improving its financial position and could be a good long-term pick.

Aiming for £10,000
At an average dividend yield of 4%, I’ll need around £250,000 invested to earn £10,000 a year in passive income. I think that’s achievable, over time.

In terms of where to invest, my plan for the time being is simple. I’m aiming to buy whatever will generate the best return over time – whether that’s growth stocks or dividend share

SEQI offers a high yield from a diversified portfolio of infrastructure loans…

Overview

Infrastructure is essential to an economy and society, and from an investment point of view has many stable qualities. Sequoia Economic Infrastructure Income Fund (SEQI) offers investors a way to generate an exceptionally high yield by lending against infrastructure projects and assets. Unlike some more specialised peers, the trust owns a highly diversified portfolio of loans invested across multiple sectors, from new economy areas like digitalisation and the energy transition to the more long-standing asset types such as railways and ports.

SEQI invests in private debt, which means it typically acts on its own or with a small group of other specialised lenders to supply funding to projects which for a variety of reasons don’t easily fit within a public bond structure. This requires a high degree of expertise when it comes to origination and risk assessment, and this along with the illiquidity of the loans means that highly attractive yields can be earned. SEQI yields 8.8% on an annualised basis at the time of writing, which partly reflects the Discount. However, the portfolio itself yields around 10% in cash terms (i.e. the yield earned on the current market value).

This high yield is generated from a portfolio with a high degree of defensiveness. Gearing  not a part of the model, while investments are generally held to maturity. The extra yield comes from a portfolio typically invested in BB/B credit quality investments, at the top end of the high-yield market. Head of portfolio management Steve Cook and team are defensive in sector and security selection, with very little exposure to construction risk, and highly flexible in their ability to allocate across a broad variety of industries. The publication of monthly external NAV valuations brings a high degree of transparency.

The shares trade on a discount of 15.7% at the time of writing (at the tighter end of the discount range for listed infrastructure and credit trusts, reflecting the largest buyback programme in the alternatives space since July 2022, which continues .

Analyst’s View

Many of the themes supporting the cash flows to SEQI are some of the most well-established secular growth themes in the world economy: digitalisation, the expansion and “greening” of the power grid, and building out renewable energy, for example. Additionally, there is widespread recognition across the US and Europe that its core infrastructure is in desperate need of renewal. There has been a huge wave of investment in the equity of infrastructure as a result, with global assets at over $1trn. This is creating an attractive opportunity for debt investors: currently the yield-to-maturity of SEQI’s portfolio, which can be thought of as the portfolio’s internal rate of return (IRR) is around 10%, unlevered. This means that the trust offers a way to generate an equity-like return by investing in debt in some highly attractive growth themes, but with much more stability and defensiveness than is available in equities.

This is an asset class that has historically been the preserve of banks and institutional investors, but SEQI makes it available to the mass market. The team is highly experienced, bringing with them a wealth of knowledge from their time originating and managing these investments for investment banks before launching the fund in 2015. We think that the trust could be a good ‘one-stop shop’ for investors seeking to get the diversifying and defensive qualities of infrastructure into their portfolios.

Bull

• A high dividend yield from a portfolio with relatively low credit risk
• Highly diversified exposure to a specialist asset class via an experienced team
• Significant buyback programme offers source of return and demonstrates conviction in portfolio

Bear

• Complex asset class
• Yield on proportion of portfolio may fall with interest rates
• Currency hedging may be expensive in future

I’ve bought for the Snowball 4981 shares in SEQI

Sequoia Economic Infrastructure Income (SEQI)

27/06/2024

Results analysis from Kepler Trust Intelligence

Sequoia Economic Infrastructure Income (SEQI) has released its financial results for the year ending 31/03/2024. Over the year, the trust saw its NAV increase by 8.1% on a total return basis, in excess of its target return of 7-8%.

SEQI paid a total dividend of 6.875p per ordinary share which represents a yield of 8.7% on the share price at the time of writing. The trust delivered a total share price return of 9.6%, helped by a modest narrowing in its discount from 13.8% to 13.5%. The discount has since widened to 16.2%.

The managers have been active in portfolio management, increasing the proportion of fixed rate investments from 42% to 58% over the financial year to position the portfolio to take advantage of the expected fall in interest rates.

The managers and board also continue to take a proactive approach to capital allocation, repaying the revolving credit facility to reduce net debt to zero and returning £88 million to shareholders via a share buyback programme.

Chair James Stewart commented: “I am pleased to announce another resilient year of performance, despite ongoing challenges in the macroeconomic backdrop.”

Kepler View

Sequoia Economic Infrastructure Income (SEQI) generates a high yield for investors by lending against infrastructure projects backed by the security of tangible physical assets. The infrastructure sector is forecast to enjoy strong growth from mega-trends such as digitalisation and decarbonisation, which require trillions of pounds of investment.

This has led to a significant growth in private sector financing as a means of plugging the gap from government spending. We think SEQI is well-positioned to take advantage of this opportunity as the only listed economic infrastructure debt vehicle in the UK. One of SEQI’s strengths is the diversification of its portfolio, with around 55 investments across 30 sub-sectors.

Against a challenging backdrop for alternatives, SEQI has delivered a strong set of results with a NAV and share price total return of 8.1% and 9.6% respectively. This was primarily due to its focus on credit quality through the year.

In our view, SEQI could be an attractive proposition for investors seeking exposure to the infrastructure sector, which offers defensive qualities in addition to strong secular growth themes. While there would be some negative impact on income from falling interest rates, the managers’ decision to build up fixed rate exposure has counteracted some of this. We think the dividend looks sustainable over the coming year, thanks to the high amount of liquidity available and the current outlook for rates. Given the likely positive impact of falling rates on the valuation of the portfolio, we think there is the potential for strong total returns in such an environment from the 8.7% dividend yield plus capital upside from pull to par and a possible narrowing of the discount.