A dividend stock and an ETF I’d buy to target a £1,000 passive income!

This dividend stock and exchange-traded fund (ETF) could be great picks for investors seeking a large passive income now and in the future.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Middle-aged black male working at home desk

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.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Global stock markets are rising again as investor confidence rebounds. The MSCI world index of shares has just put in its best weekly performance of 2024. But it’s still a great time to go shopping for high-yield dividend stocks.

Years of underperformance mean many stocks across the London Stock Exchange continue to offer juicy dividend yields. While we need to guard against potential investor traps, many of these shares look in good shape to pay large (and even growing) dividends over time.

One of my favourites can be seen in the table below. I’ve also included a high-yielding exchange-traded fund (ETF) that I’d like to buy to boost my passive income.

Dividend stockTrailing dividend yield
Alternative Income REIT (LSE:AIRE)8.3%
SPDR S&P Euro Dividend Aristocrats UCITS ETF (Dist) (LSE:EUDV)4.3%

Both of these assets offers a yield far above the FTSE 100 forward average of 3.5%. If broker forecasts are accurate, a £16,000 lump sum invested equally across them would provide me with a second income of just over £1,000 this year alone.

Here’s why I’d buy them if I had spare cash to invest today.

Alternative Income REIT

Real estate investment trusts (REITs) can be ideal for a regular source of income. For starters, they’re property stocks, meaning they enjoy a steady flow of income through their rent collections.

Alternative Income REIT has its tenants locked down on long contracts too, providing it with added long-term stability. As of June, its weighted average unexpired lease term (or WAULT) stood at a hefty 16.4 years, to the earlier of break and expiry.

On top of this, REITs must pay out a minimum of 90% of profits from their rental operations in the form of dividends. This is in exchange for certain tax advantages (like not having to pay corporation tax).

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.

On the downside, property companies can struggle to collect rents when times get tough. But of late, this particular REIT hasn’t had any problems on this front.

Collection remains strong thanks to its exposure to cyclical and non-cyclical sectors, and robust customer base (which includes FTSE 100 companies Whitbread and B&M). Indeed, the trust collected 100% of rents it was owed during the year to June.

SPDR S&P Euro Dividend Aristocrats UCITS ETF

By comparison, dividends at the SPDR S&P Euro Dividend Aristocrats UCITS ETF are more sensitive to broader economic conditions.

This fund provides exposure to 40 European heavyweight stocks. These include chemicals giant Solvay, financial services provider Generali and courier DHL. The trouble is a large number of its holdings operate in cyclical industries.

That’s not to say the companies it’s invested in have flaky dividend records. Far from it, in fact. As its name implies, it invests in Dividend Aristocrats, more specifically companies that have raised or held payouts for at least 10 consecutive years. This provides it with more solidity than many other income-focused funds.

This fund has delivered a decent average annualised return of 7.95% over the past decade. I think it could be a strong stock for investors building a dividend portfolio to consider buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »