Both Safestore (LSE:SAFE) and Aviva (LSE:AV.) shares have caught my attention at the start of June. Why are they both trading at bargain-basement levels?

Safe as houses?

Safestore is one of the most reliable FTSE 250 income shares out there. It’s raised its annual dividends for 16 straight years, and City analysts are expecting another rise in financial 2026. This leaves a 5% forward dividend yield.

That dividend resilience reflects the stock’s classification as a real estate investment trust (REIT). It has to pay at least 90% of yearly rental earnings out in dividends. So why is Safestore struggling to attract attention from value investors? Today its forward price-to-earnings (P/E) ratio sits at 8.9 times.

It’s true the outlook for REITs has changed since the start of the Iran war. The market had been expecting interest rate cuts that could boost asset values and reduce these firms’ borrowing costs. Now the Bank of England is tipped to hike rates in response to rising inflation.

There’s another more specific threat to Safestore, too. It doesn’t operate in a defensive sector like food retail or healthcare. As a consequence, it could see revenues fall if broader demand for self-storage spaces drops.

However, I still believe Safestore shares are changing hands far too cheaply today. And especially considering how robust trading has remained despite previous pressures. Latest financials showed like-for-like sales up 4.2% in the three months to January, while closing occupancy increased 1% to 77.8%.

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.

A 6.7% dividend opportunity?

Like Safestore, Aviva shares also look undervalued based on expected earnings. Forget about its unspectacular forward P/E ratio of 12.1. A sub-1 price-to-earnings growth (PEG) ratio suggests the FTSE 100 company offers outstanding bang for the buck.

So what’s the story here? Aviva provides a range of financial services, and is a particularly large player in general insurance. The problem is it also generates substantial profits (more than half, in fact) from more cyclical segments like asset management and life insurance.

But again, recent trading suggests the market could be overstating the threat of the Iran war to company profits. Last month, Aviva said it’s on track to grow operating earnings 11% on an annualised basis between 2025 and 2028. In my view, its market leading positions leave it in great shape to capitalise on demographic trends, helping it to grow earnings.

Things can change, of course. But even if profits do experience a temporary blip, Aviva’s strong balance sheet means I’m confident it can raise dividends for a seventh straight year in 2026. Its forward dividend yield is currently an enormous 6.7%.

Should you invest £5,000 in Aviva Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva Plc made the list?

Royston Wild owns shares in Aviva.

The post How are these FTSE 100 and FTSE 250 dividend stocks so cheap?! appeared first on The Twelfth Magpie.

And while putting aside £250 a month might be a bit challenging in the current cost-of-living crisis, the magic of compounding means that investors who manage to muster this capital could eventually find themselves sitting on a mountain of income-generating wealth.

Here’s how.

Getting started

The easiest way to kick-start an investing journey is with a simple low-cost index fund. Here in the UK, the FTSE 100 has historically delivered an annualised return of around 8% over the long run. And by investing £250 a month at that rate, a brand-new portfolio would grow to £260,602.76 over 26 years.

Following the 4% withdrawal rule, that’s enough to sustainably generate a passive income of £10,424.11 a year – not bad at all.

But 26 years is a long time to wait. And if the stock market suddenly decides to throw a tantrum at the last minute, the actual waiting time could be much longer.

However, for investors willing to do a little more homework and pick stocks directly, this timeline could be drastically accelerated, even when investing in boring, steady businesses.

The power of stock picking

Rather than relying on a broad index fund, I prefer to buy shares in FTSE companies directly, targeting businesses that I think have the widest competitive moats and strongest long-term return potential.

Safestore Holdings‘ (LSE:SAFE) one such company from my personal portfolio, and serves as a striking example of when stock picking can lead to tremendous results.

The UK’s largest self-storage operator has averaged a 14.1% annualised return over the last 15 years – nearly double the index average. And anyone who’s been drip feeding £250 each month at this rate since May 2011 is already sitting on £152,936.38 today.

Assuming this momentum continues for roughly three more years, that nest egg could grow to £250,000, unlocking a £10,000 passive income in the process. That’s 18 years to hit the £10k income target – a full eight years faster compared to index investors.

Of course, the question now becomes, can Safestore keep delivering?

Bull vs bear

Safestore’s encountered quite a few macroeconomic challenges in recent years. Higher interest rates have weighed heavily on its leveraged balance sheet. And the impact has been amplified across its self-storage portfolio with customers, particularly small- and medium-sized businesses, ending their leases or downsizing to smaller stores.

Nevertheless, I remain optimistic for what’s on the horizon. Safestore’s a highly cash generative business model, resulting in some fairly resilient underlying fundamentals, despite what the pullback in share price suggests.

But there’s an even more compelling reason why I’ve been buying beyond a discounted valuation: Europe.

The European self-storage market’s still relatively young, underpenetrated, and highly fragmented. In fact, the current market looks eerily similar to the UK when Safestore first got started over two decades ago. And with management already starting to execute and deliver results using its proven playbook, the growth seen so far might truly be just the tip of the iceberg.

So for investors looking for FTSE shares that are long-term steady compounders, Safestore might be worth a closer look.

Should you invest £5,000 in Safestore Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Safestore Plc made the list?

Zaven Boyrazian owns shares in Safestore Holdings.

The post How to invest £250 a month in FTSE shares to target a £10,000 passive income for life appeared first on The Twelfth Magpie.

This alone doesn’t guarantee large and growing dividends over the long term. But combined with other factors — like long tenant contracts and exposure to different sectors — it can make them formidable passive income providers.

This is shown by the stunning payout records of LondonMetric Property (LSE:LMP), Safestore Holdings (LSE:SAFE), and SEGRO (LSE:SGRO). Collective dividends across these three trusts have risen every year for more than three decades.

Want to know what makes them formidable dividend stocks? Read on.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

LondonMetric Property – 10 years of dividend growth

LondonMetric is a classic, rock-solid REIT. It has clients tied down on ultra-long contracts (current average lease term: 17 years). And its portfolio holds 670 different assets, meaning isolated tenant issues don’t impact profits at group level.

Yet this trust has an ace up its sleeve: it’s the UK’s largest triple net lease (NNN) REIT. It means the tenant and not LondonMetric is responsible for property taxes, maintenance costs, and insurance charges. Rents are lower as a result. But earnings visibility is much better, as unwelcome earnings shocks are better avoided.

The forward dividend yield here is 6.5%. I think it’s a great dividend share to consider, though, as with all property stocks, profits could come under pressure if interest rates rise.

Safestore Holdings – 12 years of dividend growth

Safestore is the UK’s largest self-storage specialist, one of the fastest-growing parts of the property sector. With 214 separate properties in its portfolio, dividends have risen strongly along with earnings for more than a decade. I’m confident the trust should keep delivering as factors like e-commerce, a rising domestic population, and changing consumer habits drive market growth.

There is a drawback here, however. Unlike LondonMetric, this company only focuses on one sector, which creates greater concentration risk. By comparison, the other REIT I’ve described has exposure to logistics, healthcare, leisure, and retail.

On the other hand, it is better diversified by region — as well as the UK, it owns dozens of assets in Mainland Europe, which sets it apart from most other British REITs. Its forward dividend yield is a healthy 4.7%.

SEGRO – 12 years of dividend growth

SEGRO has an even better dividend yield, at 4.8%. It also has a dozen straight years of dividend growth behind it, helped by its focus on warehouses and logistics assets.

This has driven profits steadily higher, as the growth of online shopping and post-pandemic supply chain changes have supercharged demand. The subsequent shortage in available properties has meant SEGRO’s enjoyed robust rental growth. This shortfall looks set to last too, underpinning future earnings and dividends.

There are a couple of other reasons why I like this FTSE 100 stock. Its expansion into data centres provides added growth opportunities. It also has an expanding portfolio in Continental Europe to complement its UK base.

Rent increases may be harder to come by during economic downturns. But I’m still expecting SEGRO to be one of the UK’s best-paying REITs.

The post 34 years of dividend growth! 3 top REITs to target income appeared first on The Twelfth Magpie.

Here’s how.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

What’s the plan?

The fastest and easiest way to deploy capital in the stock market is with a FTSE 100 index tracker fund.

This instantly diversifies the £5,000 across the UK’s 100 largest businesses, giving indirect exposure to a vast array of industries as well as dividend-paying stocks. And right now, the yield on the UK’s flagship index is 2.96%.

That means a £5,000 investment today will instantly generate a £148 second income overnight. However, that payout could grow over time.

On average, FTSE 100 companies have increased their dividends by close to 3.2% a year over the long term. And at this rate, after 15 years, this initial 2.96% yield could grow to 4.75%, boosting the income stream to £237.50.

That’s a 60.5% increase. And this growth would be amplified even further if an investor decides to reinvest dividends paid along the way instead of just taking the income from day one.

Aiming for £1,044.22

Instead of relying on passive index funds, investors can buy shares of high-quality dividend-paying stock directly, opening the door to potentially vastly superior results.

A perfect example of this in action is Safestore Holdings (LSE:SAFE).

The UK’s leading self-storage operator has built up an impressive empire over the last 15 years. And with largely fixed operating costs, the company has transformed itself into a free cash flow generating machine that’s funded an ever-increasing dividend.

Yet unlike the overall FTSE 100, the payout growth stands at an average of 12.4% per year. Subsequently, anyone who bought shares in April 2011 has gone from earning a roughly 3.6% yield to a whopping 20.9% payout today.

In other words, a £5,000 initial investment 15 years ago is now generating a £1,044.22 second income. And once again, that’s just the tip of the iceberg compared to investors who were reinvesting payouts along the way.

Is Safestore still a buy?

Since inflation and higher interest rates came knocking in 2022, Safestore shares haven’t been a terrific investment. The dividends kept flowing, but growth and earnings suffered as demand for self-storage from both businesses and consumers slowed.

But earlier this year, management announced the company had reached a critical “inflection point”.

Demand across the UK and Europe is starting to tick back up. And with the company continually investing throughout the downcycle, Safestore is now in a seemingly strong position to not only capitalise on an industry-wide recovery, but steal market share simultaneously.

In other words, the dividend growth story doesn’t appear to be over.

Having said that, success is not guaranteed. We’ve already seen the headwinds higher interest rates create for this business, and with energy costs rising rapidly, Central Banks may be forced to reverse some of their recent cuts.

What’s more, with the UK self-storage market already fairly mature, strong growth will likely be dependent on the group’s younger European operations – a market where self-storage penetration remains relatively shallow.

Nevertheless, with a superb track record, these are risks worth taking. That’s why I’ve already added Safestore shares to my income portfolio.

The post How to try and turn a £5k ISA into a £1,044.22 yearly second income appeared first on The Twelfth Magpie.

So, with forecasts pointing to even larger payouts in 2026, let’s break down how investors can aim to unlock a £71,500 passive income via the stock market.

Quality over quantity

When hunting for top-notch income stocks, it can be tempting to pursue the highest-yielding opportunities. Yet that’s often a critical error.

High yields can be lucrative. But in many cases, they come with elevated risk and lacklustre payout growth.

Yet homing in on the stocks with more modest yields but excessive free cash flow that grows year on year means the passive income not only becomes more reliable, but often continually expands. And given enough time, an initially modest yield can turn into something gargantuan.

Earnings a £71.5k income

A classic example of dividend growth in action is Safestore Holdings (LSE:SAFE). The UK’s leading self-storage operator has a very basic business of acquiring or building secure storage space for consumers and businesses and then leasing it out temporarily.

Beyond the initial cost of setting up a new self-storage facility, the running costs for the business are pretty low. And the result has been a steadily expanding empire that throws off a lot of excess cash.

The result? Anyone who bought shares in 2011 has gone from earning a modest 3.8% yield to 22.2% today. And the dividends are still growing. But that’s not all.

With free cash flow also fuelling the group’s expansion, Safestore has generated some chunky capital gains over the period. And combined, the stock has averaged a total return of 14.6% per year.

In terms of money, that means anyone who invested £23,000 in April 2011 now has £202,812 in the bank. And if this rate of return continues for another 15 years, that same investment could climb to £1.8m, generating a £71,500 passive income when following the 4% withdrawal rule.

Is Safestore just getting started?

Obviously, there’s no guarantee that Safestore will maintain its double-digit total growth for the next 15 years.

In fact, over the last few years, the shares have been stuck on a bit of a downward trajectory, triggered by higher interest rates, which are subduing self-storage demand from the real estate sector while also driving up the group’s cost of debt.

However, even with these headwinds, dividends remain comfortably covered, with a well-managed balance sheet. And now that Safestore is seeking to replicate its UK success story across Europe, the company may have only just scratched the surface of its full potential.

After all, the European self-storage market is already more than three times the size of the UK market. Penetrating this new territory undoubtedly comes with significant execution risk. But it nonetheless highlights a powerful growth runway for the business, if management’s strategy is successful.

That’s why, with a superb track record and the group’s European expansion already off to a promising start, it’s a risk I think is worth me taking (and others considering). And I’ve already added Safestore shares to my passive income portfolio. Yet it’s not the only income opportunity I’ve spotted today…

The post How to aim for a £71.5k passive income from UK shares and never work again! appeared first on The Twelfth Magpie.

And with geopolitical uncertainty creeping into the stock market, these yields are only getting bigger.

However, across all the income opportunities on the table in 2026, my personal favourite is Safestore Holdings (LSE:SAFE). Its yield isn’t the highest compared to other UK shares, but if my hunch is correct, that might quickly be about to change…

Impressive passive income

The self-storage industry’s been stuck in a multi-year cyclical downturn since the start of 2022. Higher inflation drove up interest rates, making it more expensive for self-storage operators to expand their network of facilities. But more crucially, it also resulted in home buying and home renovating activity slowing considerably.

Given this is a primary demand catalyst for temporary storage, Safestore, along with its rivals, saw occupancies suffer and rental rates fall, applying significant pressure on both revenue and earnings. And in the last four years, the Safestore share price ended up taking a near-50% tumble.

But is this all about to change? Despite the enormous pressure on the group’s financials, free cash flow generation remained impressive.

This not only means Safestore continued to expand its UK and European network, but it also maintained and even expanded dividends. In fact, the income stock’s now sitting on 16 years of uninterrupted payout hikes.

Here’s where things get interesting

In 2025, after years of lacklustre performance, Safestore seemingly hit an inflexion point. With interest rates falling, real estate activity across the UK and Europe has started picking back up. And Safestore subsequently has seen occupancy, revenue, and earnings return to growth, albeit by a modest amount.

With more interest rate cuts expected, home buying and renovation activity are expected to continue ramping back up in a cyclical recovery. And with it, so is self-storage demand.

The key difference is that Safestore now has a much larger network and capacity to capitalise on these recovery tailwinds. That opens the door to even more impressive free cash flow than before. And, in turn, that means investors who buy shares today could see their yield rise significantly in the coming years.

What to watch

Safestore shares have already jumped over 30% since spring 2025, thanks to emerging recovery signals.

However, it’s important to recognise that the self-storage market recovery timeline remains a big question mark, especially with a new wars breaking out in the Middle East.

Surging oil & gas prices could trigger a massive rebound in energy price inflation, potentially forcing central banks to pause or even reverse their interest rate cutting programmes. In such a scenario, demand for self-storage could once again suffer as housing/renovation affordability remains stagnant or worsens with more expensive debt.

Nevertheless, with an undemanding valuation, the risk-to-reward ratio still looks pretty attractive, even after the steady double-digit rally over the 10 months. That’s why I’ve already added this dividend growth income stock to my portfolio.

The post My top passive income stock to consider for 2026 is… appeared first on The Twelfth Magpie.

But is it possible to unlock some extremely high payouts?

Experienced investors will know that any dividend stocks supposedly offering a double-digit yield are likely too good to be true, with an extremely high probability of a payout cut. But for long-term investors willing to be patient, there are proven ways to sustainably earn 15%+ yields that keep on growing.

Here’s how.

Focus on cash flow, not yield

While it may seem counterintuitive, exclusively looking at the stocks offering the biggest dividends is a rookie mistake. Instead, investors should focus on identifying dividend-paying companies that generate an absurd amount of free cash flow.

Don’t forget, free cash flow is ultimately what funds shareholder payouts. And if a company can consistently generate excess cash while simultaneously investing in its long-term growth, investors could be rewarded with steadily expanding dividends.

A perfect example of this is Safestore Holdings (LSE:SAFE).

The self-storage business has very few ongoing operating expenses beyond building or buying new properties. As such, it enjoys high-margin, predictable, recurring monthly revenue, positioning the company as a cash-generating machine. And the results speak for themselves.

Anyone who invested £10,000 back in January 2014 has gone from earning an initial 3.6% dividend yield to 19.1% today.

With so much excess cash flow, Safestore’s grown its dividend by 434% over the last 12 years. That means, so long as the company keeps on paying out to shareholders, that initial £10,000 investment will continue generating almost £2,000 passively each year.

Still worth considering?

The scale of Safestore’s operations today is significantly larger than in 2014. After all, it’s now one of the largest self-storage companies in the UK.

Yet, despite taking a big bite of the overall market, self-storage remains highly fragmented. In 2025, Safestore earned £167.5m in revenue from its UK stores versus the industry’s total £1.2bn turnover. But when combined with the rest of Europe, the total estimated market size of self-storage is £20.7bn.

In other words, Safestore’s barely scratched the surface. And if it can replicate its British success across the channel, investing £10,000 today could still go on to unlock a massive double-digit yield a decade or so from now.

Of course, like all investments, there are no guarantees. Self-storage is a cyclical industry, strongly linked to the wider property market. When interest rates are low, people renovate or move houses more frequently, driving up self-storage demand. But as we’ve seen firsthand in the last few years, the opposite’s also true.

The negative impact of higher interest rates is only amplified by the group’s outstanding debts. Management has used its cash generation capabilities to borrow more money and fuel its European expansion. But when interest rates rise, that means more free cash flow’s gobbled up by interest, leaving less flexibility to hike dividends.

Nevertheless, with an impressive capital allocation track record, the risk-to-reward ratio looks promising, in my eyes. That’s why I’ve already added this dividend-growth stock to my portfolio, watching the yield slowly start to climb.

The post How to invest £10,000 to aim for a 15%+ dividend yield appeared first on The Twelfth Magpie.

According to the latest analysts by Computershare, a total of £85.9bn in dividends is expected. And this number increases to £88.8bn when factoring in potential special dividends along the way.

A £1.2bn payout hike is quite an exciting prospect for index investors. But for prudent stock pickers, even more dividend growth could be unlocked this year. Here’s one dividend growth share that I’ve already added to my passive income portfolio.

A lucrative income opportunity?

While not the most exciting business in the world, Safestore Holdings (LSE:SAFE) has nonetheless proven to be a free cash flow printing machine.

Even during the last three years, when the self-storage industry suffered through a cyclical downturn, the business continued to produce enough excess cash to keep reinvesting, execute a wider international expansion strategy, and generate a reliable passive income stream from shareholders.

There’s no denying that growth was quite elusive. After all, a key driver of self-storage demand is activity in the real estate market since people need temporary storage when moving or renovating their homes. And with interest rates going through the roof, Safestore saw its occupancy take a hit.

However, skip ahead to 2026, and that could all be about to change. Occupancy is now back on the rise. The firm’s new storage facilities, which opened back in 2023 and 2024, have started to break even and contribute towards profits. And recovering demand is also granting Safestore some refreshed pricing power with both new and existing customers.

Needless to say, that’s great news for shareholders. Even more so, given that prior to the 2023 slowdown, Safestore was hiking dividends by an average of 12% per year!

What could go wrong?

While the operating environment for Safestore seems to be improving, it’s important to recognise that the timeline for recovery remains uncertain.

Self-storage growth in Europe is proving to be quite robust, supported by notably lower interest rates versus the UK. Nonetheless, the UK remains Safestore’s core market. And a slower-than-expected rebound in the property market due to economic weakness could leave investors waiting a while longer for a return to rapid dividend growth.

This macroeconomic risk also comes paired with Safestore’s own financial obligations. Funding the buildout of new stores required taking on a bit of debt. And the group’s total borrowings & equivalents as of October 2025 now stand at just shy of £1.1bn.

Given the firm’s impressive cash flow generation, this leverage is seemingly more than manageable. However, it nonetheless reduces the amount of excess cash available to fund payout hikes.

What’s the verdict?

Seeing Safestore’s dividend return to double-digit growth in 2026 might be a bit ambitious. But when zooming out to the next few years, analyst forecasts are becoming increasingly bullish. That’s why, despite the risks, I’m seriously considering topping up my existing position. And it’s not the only dividend share I’ve got my eye on right now.

The post UK dividend shares paid £84.7bn to investors in 2025! In 2026 investors could earn… appeared first on The Twelfth Magpie.

Here are three dividend shares I think investors need to be aware of in 2026.

Plenty of signs

The London Stock Exchange Group (LSE: LSEG) is commonly known for its operations in managing the UK’s stock exchange. That has been a struggle recently as London is suffering from a dearth of IPOs. But there’s a lot more to the company than first appears.

The robust nature of this business means this isn’t the highest yield on the market – currently 1.65%. Remember, the better a firm’s growth prospects, the lower its yield tends to be. But this is a growing business and that growth is fuelling its dividend.

The dividend payments have been increasing every year for the last 15. The growth rate of the dividend over the last 10 years is an astonishing 19% too. I can count the number of FTSE 100 stocks higher than that on the fingers on one hand.

The second stock – British broadcaster and FTSE 250 member ITV (LSE: ITV) – is more of ‘jam today’ play. The firm currently pays a significantly above-average dividend yield of 6.07%. However this is a dividend that has not increased for the last couple of years.

The company is navigating the shift from traditional terrestrial television into the wide world of digital media. While this might be seen as a rocky time for the old ‘channel three’, there are plenty of signs to be optimistic.

Its own service ITVx became profitable two years ahead of schedule. The latest figures show advertising revenue and total streaming hours are both growing too.

ITV also produces a lot of shows for the big global streamers like Netflix, Apple TV, and Disney+. Shows like Love Island and Line of Duty have been monstrous successes, which suggests there could be plenty of life in the old dog yet.

Stickiness

The third and final stock is another FTSE 250 member that might just be the best of both worlds. Safestore Holdings (LSE: SAFE) offers a 3.73% dividend yield that has been growing every year since 2008.

The current five-year growth rate of the dividend is 10.54% and the 10-year growth rate 12.27%. If those figures continue then investors will be looking at a rising passive income for years to come.

Safestore is a real estate investment trust that draws in stable revenues from sticky customers. Around 70%-80% of sales is from existing customers who need storage solutions. This could be one reason this will be a reliable dividend payer for years to come.

While higher interest rates could weigh heavily on a large-ish debt burden, the possibility of expansion into Europe could make this a very attractive option to consider, as far as I’m concerned.

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.

The post 3 dividend shares investors should be aware of in February 2026 appeared first on The Twelfth Magpie.

What’s more, even with a relatively small lump sum of £5,000, it’s possible to start earning a decent annual payout of £700. That’s a 14% yield, far more than what even the most generous Cash ISAs offer today. Here’s how.

Turning £5,000 into £700 a year

After generating some superb returns in 2025, the FTSE 100 index currently only offers a yield of around 2.9%. The FTSE 250 is a bit more generous at 3.3%, but that too still falls short of the target 14%. For reference, in terms of money, at these rates, relying on index funds would only generate a £145-£165 annual passive income.

To aim higher, investors have to turn to a stock-picking strategy. That way, they can invest in the specific companies that offer much higher yields… like FDM Group (LSE:FDM) with its 14.3% payout – enough to generate £715 each year overnight.

Yield versus risk

As a quick introduction, FDM’s a consultancy group focused primarily on the IT sector. When businesses launch complex projects, FDM offers a helping hand by sending talented professionals to assist with their implementation, design, and execution.

The only trouble is, in recent years, with most businesses cutting back on non-critical spending, demand for its services has suffered considerably, with less than half the number of consultants deployed today versus four years ago.

Consequently, revenues and cash flows have collapsed along with its share price. And consequently, despite seemingly offering a substantial yield, a dividend cut has already been announced.

Put simply, FDM Group’s a perfect example of a yield trap.

A better strategy?

However, looking ahead, FDM’s fortunes could improve. IT consulting is ultimately a cyclical enterprise, and with over 30 years’ experience, the company’s no stranger to navigating tough downturns. The fact that management’s prepared the balance sheet to be cash-rich and debt-free supports this even further.

But what about the goal of earning a 14% yield? Companies like FDM with enormous payouts almost always come with extreme levels of risk. Therefore, in my experience, a far more effective and lower-risk strategy is to find the companies that may not have a high yield today, but can continuously grow their dividend over time.

A perfect recent example of this would be Safestore (LSE:SAFE). By generating consistent and recurring cash flows from renting extra storage space to businesses and consumers alike, earnings have been steadily compounding over the years.

The result has been 15 years of consecutive dividend hikes. And that means anyone who invested £5,000 in 2011 isn’t earning a 14% yield today but rather a 22.8% yield, enough to generate £1,140 passive income.

Like FDM, Safestore still has its risks. Self-storage demand’s similarly cyclical and heavily tied to the home renovation market, which isn’t exactly thriving right now.

Nevertheless, the business continues to generate reliable cash flows from a service that seems likely to stick around for several more decades. So for investors seeking to earn a substantial long-term passive income, Safestore shares could be worth investigating further.

The post Here’s how to invest £5,000 in an ISA for a £700 passive income appeared first on The Twelfth Magpie.