The British and global economies face a prolonged period of weakness. So for investors seeking passive income, the task of finding stocks that will deliver decent dividends is tougher than usual.
Companies that generate most or all of their profits from these shores could find it especially difficult in the short-to-medium term. Analysts at Bloomberg Economics are predicting a 52% chance of a recession due to higher-than-normal interest rates and rising unemployment.
Yet I believe now is still a good time to buy UK shares for dividends. There are many rock-solid stocks out there that should still pay a good second income in the current climate. Here are two on my radar right now.
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Empiric Student Property
Purchasing residential property providers is a good idea in tough times. This is because having a roof over one’s head is one of life’s non-negotiables.
It’s why I think Empiric Student Property (LSE:ESP) is a great buy right now. Studies show that university participation doesn’t fall when economic conditions worsen. So this real estate investment trust (or REIT) is expected by City analysts to deliver strong earnings growth over the next few years.
Empiric is on a roll right now. It announced last week that like-for-like rental income leapt 10.5% for the 2023/24 academic year, a result the company said “is largely the result of a higher level of late cancellation and rebooking activity“. Revenue occupancy, meanwhile, came in at a forecast-beating 99%.
Given the industry’s weak development pipeline, the huge accommodation supply problems that are helping to deliver these strong numbers look set to persist.
Pleasingly for income investors, Empiric hiked its dividend forecasts for the full financial year on the back of its strong recent performance. It now intends to pay a 3.5p per share reward, up from a previously designated 3.25p, which would represent a 27% year-on-year improvement.
REITS are required to pay 90% of annual rental profits out in the form of dividends. So I expect Empiric to be a solid income provider for years to come. I’d buy it even though higher interest rates could persist, keeping its net asset values (NAVs) under pressure.
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Wynnstay Group
Agricultural products supplier Wynnstay Group (LSE:WYN) is another UK share with above-average dividend yields that I’m considering buying. Its yield for 2023 sits at a market-beating 4.4%.
Food is one industry in which demand remains constant at all points of the economic cycle. And so this Alternative Investment Market (or AIM) company is expected to keep hiking dividends in spite of the tough macroeconomic outlook.
Wynnstay supplies animal feeds, seed, and fertiliser, and operates a grain marketing service. Revenues here rose 22% between January to June, to £409.1m, even as fertiliser prices receded from levels recorded in the aftermath of the Ukraine war.
The company has completed more than 50 acquisitions to boost its position in its highly fragmented industry and grow profits. Acquisition-related activity can be risky business, but Wynnstay has a great track record on this front. I think it could also be a great buy for long-term dividend growth.
