Two trusts in particular have caught my eye lately. Each owns a robust portfolio of market-leading companies with strong balance sheets, making them perfect for dividend chasers. And their dividend yields sail past the FTSE 100 average of 3% to 4%.

These are:

• Henderson Far East Income (LSE:HFEL) — 9% dividend yield.
• Schroder Real Estate Investment Trust (LSE:SREI) — 7.8% dividend yield.

Here’s what makes them excellent UK-listed income stocks to consider.

Look East

Henderson Far East Income is designed to provide

a growing total annual dividend per share, as well as capital appreciation, from a diversified portfolio of investments from the Asia Pacific region.

This focus on fast-growing regions means a huge dividend yield and steady payout increases. Indeed, dividends here have risen every year since the early 2000s. But that’s not all, as — like other emerging market stocks and trusts — it has also enjoyed stunning share price gains. It’s risen 25% in value over the last year.

It’s important to note the share price performance of Henderson’s trust has been bumpier over a longer timescale. This could remain so, like other Asia-focused investments. But as China’s economy picks up steam again and buoys the broader continent, I’m optimistic the trust can keep outperforming.

In total, Henderson Far East Income holds shares in 72 companies, providing particularly strong exposure to financial services and information technology.

A top REIT?

Schroder Real Estate Investment Trust isn’t designed to hold a portfolio of income-paying stocks. Instead, its goal is to deliver

an attractive level of income and the potential for income and capital growth from owning and actively managing a diversified portfolio of UK commercial real estate

Its official status as real estate investment trust (REIT) has large positive implications for dividend investors. These companies receive juicy tax breaks. And in return, at least 90% of yearly profits from their rental operations must be paid to shareholders.

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.

Here’s the thing, though. This alone doesn’t guarantee a large and reliable dividend income. With exposure to cyclical sectors like offices, retail and industrial, could the trust’s rent collection and occupancy suffer during downturns? It’s possible.

However, its large portfolio of 33 properties significantly cut the risk of such disruptions. It also enjoys an average lease term of over five years, giving it further solid earnings visibility.

A £1,680 income opportunity?

The average dividend yield on Henderson Far East Income and Schroder Real Estate Investment Trust is 8.4%. At this level, a £20,000 investment spread equally across them will deliver a £1,680 passive income just for 2026. I think both demand serious consideration.

Should you invest £5,000 in Henderson Far East Income 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 Henderson Far East Income made the list?

Royston Wild does not hold any positions in the companies mentioned.

The post An 8.4% average yield from passive income stocks? Consider these top investment trusts in July appeared first on The Twelfth Magpie.

One of the industry titans

I’m talking about the Schroder Real Estate Investment Trust (LSE:SREI). The stock’s down 10% over the past year, with a dividend yield of 7.58%. It owns a portfolio of UK commercial property, which is predominantly modern logistics and industrial assets, and earns money from long-term rental agreements with corporate tenants

Straight away, there’s a good reason why I like the company. The trust’s revenue is largely contractual, in that tenants pay rent (often with inflation-linked uplifts), and after expenses the remaining cash flow is distributed to shareholders as dividends. It’s a simple business model that’s easy to follow and monitor.

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.

Dealing with higher borrowing costs

The stock’s down in the past year, but I believe this has less to do with the quality of the property assets and more to do with the environment facing property companies.

Given worries around higher inflation in recent months due to the energy price shock, many expect UK interest rates to rise later this year. This negatively affects REITs because they must borrow to fund new projects. As a result, higher interest rates increase borrowing costs and reduce profit.

Even with this risk going forward, I’m still optimistic about the dividend. The latest half-year report showed it has “a sector-leading debt profile underpinning earnings stability”, with a low average interest cost of 3.4%.

This should help to protect it against any interest rate swings in the immediate term. Further, the trust has been allocating capital to higher-growth sectors, with 64% of capital allocated to industrial and retail warehouses. Given higher rents can be charged in this area, with higher average occupancy rates, it bodes well for future earnings.

Talking numbers

Given the elevated yield, an investor can make use of compounding dividends over time to enhance the yield even further. For example, let’s say someone bought £3k worth of the stock now. This could pay £227.4 over the coming year. If this were reinvested, it would now be £3,227.40. So in the following year, even with the same yield, it could generate £244.64.

If this were kept up for 15 years, it could pay £678 the following year, even without adding any more funds! The accrued interest from day one could be £6,318. Of course, planning this far in advance is tricky. It could be that the dividend gets cut further down the line.

But in principle, it shows how effective compounding yields with a sustainable stock can be. On that basis, I think it’s a stock for investors to consider.

Should you invest £5,000 in Schroder Real Estate Investment Trust 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 Schroder Real Estate Investment Trust made the list?

Jon Smith has no positions in the shares mentioned.

The post £3k in this REIT could pay an investor £6.3k in second income appeared first on The Twelfth Magpie.

A trip to Europe

I’m talking about the Schroder European Real Estate Investment Trust (LSE:SREI). Over the past year, the stock has fallen by 9%, but it has a dividend yield of 8.58%.

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.

At its core, the trust invests in commercial real estate across Europe (as the name suggests). If we’re being a bit more specific, it’s offices and logistics hubs in countries such as Germany and France. The aim is to buy properties, collect rent, improve the buildings over time, and ultimately grow both rental income and asset values.

That rental income is the main source of the trust’s income. On top of that, the managers hope that properties will appreciate over time, boosting the portfolio’s net asset value (NAV). Talking about the NAV, the share price currently trades at a 42% discount to it. Given that the portfolio of properties should closely match the NAV, this could indicate the stock is undervalued. Over the coming years, this discount could narrow, which is why some see it as a value stock right now.

The dividend outlook

Aside from the potential share price gains, the dividend yield is exceptionally attractive. The trust typically pays a quarterly dividend, with the dividend cover of 1.2. This means that the earnings per share easily cover the dividend, which is a good sign that things are sustainable.

Looking ahead, a big factor (and one that has driven most of the stock’s decline over the past year) is interest rates. Interest rates staying higher for longer have negatively impacted trust, as investors had to readjust their expectations. Further, with the energy price shock, there’s the potential for interest rates in Europe to rise this summer. This makes borrowing more expensive for real estate purchases, reducing profits and future growth potential.

Even though that’s a risk going forward, it could be easily resolved if the conflict in the Middle East ends in the coming months. Not only would this ease pressure to raise interest rates, but it could also improve sentiment on corporates committing to longer leases on sites, as the business outlook would be more stable.

The bottom line

It’s true that the discount to the NAV could remain for several years. Yet during this period, the dividend payments more than compensate for this. It’s not a low-risk stock by any means, but I think it’s worthy of consideration for investors who are aware of the risks.

Jon Smith has no positions in the shares mentioned.

The post This value stock has a yield of 8.58% and is trading at a 42% discount appeared first on The Twelfth Magpie.

The foundations

A good point to remember is that using a Stocks and Shares ISA can help to grow the portfolio faster. This is because the ISA isn’t subject to dividend tax or capital gains tax when someone sells a stock in the ISA for a profit.

An investor can put up to £20k a year in the ISA, which equates to £1.66k a month on average. Indeed, for the first few years, any income from the holdings could be reinvested to buy more stocks. Even though this means passive income can’t be enjoyed initially, it helps to speed up the process of reaching the end goal.

To target eventual daily passive income, I estimate a portfolio needs to hold around 100 stocks. Based on companies paying quarterly dividends, this should tick the box for receiving some money on average each day.

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.

Talking numbers

Based on active stock selection from both the UK and the US, I feel an average dividend yield of 6% is realistic. Therefore, to bank £50 on an average day, the ISA would need to be worth £300k. If someone invested the maximum of £20k per year in the ISA, it could take just under 11 years to reach this amount.

Of course, someone might not be able to invest that amount of money. If the amount was reduced to £750 a month, the goal could still be achieved, but it would take almost 19 years to reach.

Given all these projections, it’s important to remember that nothing is guaranteed. Things can change in the future that might mean dividends might get cut. Further, depending on dividend payment dates, money might not get paid every single day.

Potential inclusion

One example of a stock that could be included is the Schroder Real Estate Investment Trust (LSE:SREI). Over the past year, the stock is up 6%, with a current dividend yield of 6.61%.

It owns and manages income-producing real estate. It’s mostly commercial property, spanning retail through to logistics or industrial sites. Its largest holding now is Stacey Bushes Industrial Estate in Milton Keynes, valued at 11.2% of the overall portfolio.

As a listed real estate investment trust (REIT), the firm must distribute at least 90% of its net taxable income to shareholders. Therefore, when looking for a good income stock for the ISA, it becomes appealing. The dividends are typically funded by rental income from tenants.

Looking down the tenant list, the largest contributors include Siemens, Matalan and Premier Inn. Therefore, I’d be pretty confident in the prospects of dividends continuing to be paid based on the strength of these businesses.

However, 43% of the portfolio is concentrated in the north of England and Scotland. That’s quite high, so if this part of the country struggles, it could materially impact the trust. Yet on balance, I think it’s a good stock to consider as part of the ISA strategy.

The post How much do you need in an ISA to target £50 in daily passive income? appeared first on The Twelfth Magpie.

A commercial property gem

The stock I’m referring to is Schroder Real Estate Investment Trust (LSE:SREI). It’s up 6% in the past year, with a current dividend yield of 6.6%.

As a REIT, it has a clear aim to provide shareholders with an attractive level of income. In order to keep the favourable perks of being a REIT, one is to pay out a certain amount of earnings as dividends to investors. It tries to do this through its primary source of income — the rent paid by tenants of its properties.

Its portfolio is focused on UK commercial property, such as offices, retail warehouses, and industrial estates. It focuses on acquiring new sites where it believes active asset management and sustainability upgrades can drive income growth and capital appreciation.

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.

Where the valuation gap comes in

The share price of the trust should (in theory) match the net asset value (NAV) of the properties. The total portfolio value of the properties is basically what the business is worth at any specific time. Yet based on the latest NAV information, the share price is 16% below this. There are a few reasons why this can happen.

The first is sentiment. If investors are uncertain about the trust’s prospects, they might sell the stock, even though the portfolio’s valuation hasn’t changed. Another factor is the daily movement in share prices. Yet the NAV updates are usually delivered each quarter. Therefore, when the next NAV update comes through, it could be higher or lower than the last one.

I do believe the gap is too wide here and, over time, it should move closer to zero. However, this is where long-term investing comes in. The stock could rally 16%, but it might take some years to happen.

Banking income in the meantime

While waiting, the regular income payments can act as a source of profit. At the moment, the dividend cover’s 1. This means the earnings per share fully cover the dividend. As a result, I don’t see any immediate concern that the dividend will be cut.

One risk is that it’s still uncertain how well commercial property will do. Some companies are pushing for a return to the office, but others are moving fully remote. This could impact demand.

Overall, I think the trust does offer good long-term value, along with above-average income payments. Therefore, it can be a stock for investors to consider.

The post This income stock’s 16% undervalued with a 6.6% dividend yield appeared first on The Twelfth Magpie.

Yet as someone that’s been involved in the stock market for many years, there are a few key mistakes to avoid on this front.

Don’t confuse the index with individual stocks

The FTSE 100 hit all-time highs earlier this year. Next year, I believe the index will trade even higher, possibly above 9,000 points. Due to this, some investors might shy away from buying FTSE 100 shares, arguing that it’s too expensive or that buying something at all-time highs isn’t a smart move.

This thinking confuses the index performance with stock performance. Even though the FTSE 100 might be at highs, there’s still value in individual stocks. It doesn’t mean all FTSE 100 shares are at all-time highs and overvalued.

So the mistake to avoid here is to not invest because someone thinks the index is overvalued. With the right research, opportunities can always be found for good value stocks.

The issue with REITs

Some investors will look at UK property real-estate investment trusts (REITs) as a cheap area to buy. They’ll flag up the fact that for several, the net asset value (NAV) of the portfolio is higher than the share price. In some cases, this can be a 20%-40% discount.

For example, consider the Schroder Real Estate Investment Trust (LSE:SREI). The current dividend yield’s 6.73%, with the stock up 10% over the past year. The share price currently trades at a 19% discount to the NAV. It was last equal to the NAV back in late 2016.

It’s true that in the long term the share price should rise to around the same level as the NAV. Yet this can take several (indeed many) years to happen!

One reason why this REIT has the discrepancy is because commercial real estate’s fallen out of favour with investors over the past couple of years. The shift towards more flexible working since the pandemic has caused some to sell property shares, even though the value of the REIT portfolio hasn’t materially reduced.

Of course, the generous dividend yield’s still attractive for income investors. The trust has increased dividend per share payments for several years. But I feel it would be a mistake to consider this stock purely on the expectation of a share price rally back to the NAV in 2025.

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.

Looking at 2024 themes

Some areas in the market did very well in 2024. For example, the banking sector. Yet not all themes will play out the same way next year. Banks are likely going to come under more pressure with interest rates getting cut from countries like the UK and US in 2025.

The rise of AI in 2024 is a theme that could continue next year. But the point is not to assume that just because one sector did well last year that history will repeat itself in 2025.

The post 3 investing mistakes to avoid when buying UK shares for 2025 appeared first on The Twelfth Magpie.