The FTSE 100 is home to some of the world’s most popular dividend stocks. With stacks of financially robust, market-leading companies in mature industries, it’s no secret why the Footsie’s the place to target a passive income.
Or is it? Sure, the index has clear benefits for income investors. But concentrating solely on blue-chip UK shares mean investors frequently miss out on top dividend opportunities elsewhere.
Take Regional REIT , AEW UK REIT and Target Healthcare REIT. Combined with a high-paying FTSE 250 energy stock — more of that one later — the average dividend yield among this grouping is 9.2%. But what makes them such exceptional income shares to consider?
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3 top trusts
Real estate investment trusts (REITs) can be among the most reliable dividend stocks out there. I’m not saying that they’re not immune to pressures that can impact shareholder payouts. However, sector rules mean they provide better income visibility for investors than almost any other share.
This is because REITs have to pay at least 90% of profits from their rental operations out in dividends. It’s the trade-off they make for juicy tax breaks on corporation tax.
As a result, Regional REIT (9.7%), AEW UK REIT (7.7%) and Target Healthcare REIT (7.4%) offer dividends yields that tower above the UK share average. But what gives them the earnings power to deliver these juicy rewards?
Robust models
Many of Britain’s REITs aren’t immune to broader economic conditions. When times are tough, their properties can become vacant, and they can have trouble collecting rents. Regional REIT’s focus on the highly cyclical office sector leaves it especially sensitive to downturns. AEW, meanwhile, has high exposure to industrial and retail industries.
That said, these investment trusts enjoy large property portfolios and wide client bases. This significantly lessens the risk of dividend disruption if one or two tenants experience difficulties. Take Regional REIT, which has 118 properties on its books and 690 tenants on its books, providing a steady and reliable stream of income at group level.
Target Healthcare REIT is particularly robust across the economic cycle. Its rent collection was 99% in the December quarter, reflecting the trust’s focus on the ultra-defensive care home market.
11% dividend yield!
Another top dividend stock I like at the moment is The Renewables Infrastructure Group (LSE:TRIG). This FTSE 250 income hero I teased earlier offers a staggering 12% forward dividend yield.
But why is the yield so high, I hear you ask? It’s because — like many renewable energy stocks — the trust’s share price has slumped more recently, driving dividend yields higher. Lower wind speeds have hit power generation and profits. It’s also suffered as higher interest rates have inflated borrowing costs and depressed net asset values.
These remain risks, but I’m hopeful Renewables Infrastructure Group’s share price could rebound strongly as the Bank of England slashes rates again, and demand for green energy accelerates. I certainly believe it’ll remain a top dividend-paying stock, underpinned by its defensive operations that deliver stable cash flows.
The group has raised payouts almost every year since 2013 when it listed on the stock market. I think it will remain one of the UK’s greatest dividend stocks.
