On song

FTSE 250 member Hipgnosis Songs Fund (LSE: SONG) invests in music royalty rights. Every time someone streams a track it owns, Hipgnosis receives a cut, albeit a very small one. The £1.2bn-cap already had almost 61,000 songs on its books by January. A little over 3,000 of these have hit the top spot in the charts. Recent catalogue additions includes work by Neil Young and Shakira. 

The performance of SONG since it arrived on the market in July 2018 has been solid, although not spectacular. Anyone buying the shares when Hipgnosis listed will have seen their capital grow by around 15%.

As one might expect, it’s not been a straight line up. Like everything else, the shares tumbled in 2020 as the coronavirus took hold. Then again, anyone buying the shares at the bottom of the market crash would have enjoyed an even bigger gain of around 28% by now. Naturally, this is far below the recovery seen in glitzy tech stocks. However, it’s a far better return than that of the FTSE 250 index as a whole over the same period.

Share price performance aside, it’s the dividend stream that interests me the most about Hipgnosis.

Cheap income

Analysts expect the business to return 5p per share to holders in the current financial year. This gives a yield of 4.2%, based on the price of the stock as I type.

Now, 4.2% may not be the biggest cash return I can find in the FTSE 250, but it’s not to be sniffed at. Let’s not ignore the fact that the best Cash ISA currently returns just 0.55% in interest. While keeping some cash in reserve for life’s little emergencies is prudent, holding any more than truly necessary will seriously limit the ability to grow one’s wealth. 

Another attraction to SONG’s dividends is that they’re likely to be covered over twice by profits. This means a cut looks unlikely as things stand. What a contrast to many other supposedly-reliable income stocks on the market!

But the dividend stream isn’t the only thing that makes me think Hipgnosis may be one of the best shares to buy today. A price-to-earnings (P/E) ratio of just 10 looks cheap, even if capital gains aren’t a priority.

It’s also worth paying attention to the firm’s PEG (price/earnings to growth) ratio. As a rough rule of thumb, anything below 1.0 suggests investors are getting a lot of bang for their buck. Hipgnosis’ PEG ratio is just 0.4. 

Not without risk

Although I consider Hipgnosis to be among the best shares to buy, no investment is without risk. There’s always a chance the company may be overpaying for the rights it’s buying. There’s also no guarantee that listening tastes won’t change and the popularity of formerly-lucrative artists may fall. 

On top of the above, you have the 1.35% ongoing charge eating into returns. While nothing in this world comes free, it’s vital to consider the opportunity cost of not buying other income-generating stocks where the only ongoing fee is charged by the broker.

The post Passive income? I reckon this UK dividend stock could be one of the best shares to buy today appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. 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. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One such firm is Tritax EuroBox (LSE: EBOX), a REIT focusing solely on European big box warehouses. If the name sound familiar that’s because Tritax is the manager behind the UK-focused Tritax BigBox, which has done very well and over the past five years delivered a total return of over 80% thanks to a hefty dividend and capital appreciation.

The plan for EuroBox is much the same as for Tritax’s first publicly-traded REIT, namely to use the £301m it raised with its IPO to buy up large warehouses situated near major motorways and sign long-term leases with blue-chip customers. This same strategy has worked phenomenally well in the UK thanks to fast-rising demand for such warehouses from pureplay e-commerce retailers and traditional retailers that need to quickly and efficiently deliver goods to customer’s homes as well as to stores.

With little to suggest that this trend will slow down any time soon, EuroBox is well-positioned then to profit from its ability to purchase existing locations or to build its own warehouses on a completely pre-let basis, which removes a huge amount of risk for the fund and investors. As the fund just went public and is in the process of making its first purchases, returns are completely hypothetical right now, but Tritax is targeting a 4.75% dividend yield and medium-term target return of 9%.

Both of these targets look eminently achievable in my eyes and given Tritax’s great track record with BigBox, I think income investors would be well-served by checking out EuroBox for themselves.

A novel market newcomer

While EuroBox investors can at least use the track record of BigBox and US-listed warehouse REITS as a guide to what to expect, investors in the brand new Hipgnosis Songs Fund (LSE: SONG) are very much on their own.

Hipgnosis has been set up by music industry veteran Merck Mercuriadis, who has served as manager to Elton John and Guns N’ Roses among other big names, to purchase writers’, publishers’ and performance rights to songwriters’ creations. The company’s IPO raised £202.2m towards the end of June and the fund has already made its first investment, a 75% interest in the catalogue of songwriter The-Dream for $23.75m. This purchase includes the rights to 302 songs performed by artists such Justin Bieber, Jay-Z and Rihanna.

Once it owns the songwriter’s rights to songs, the fund can license them as well as earn royalties each time they are played. This income stream is intended to be directed towards further acquisitions and steady dividends paid to shareholders. Management’s target is for an initial dividend yield of around 5% with annual NAV returns of 10%.

The fund is certainly a novel idea and with big names in the music industry lined up behind it, it certainly won’t lack for insider knowledge and expertise. However, with a relatively untested businesses model I’ll be watching from the sidelines for the time being to see how it all shakes out for Hipgnosis. 

The post Two brand new investment trusts for income-hungry investors appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. 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.