Approximately 26% of UK adults have a Stocks and Shares ISA. The rest might be missing out on a huge opportunity.
The stock market isn’t just about building wealth. It can also be a great way of earning passive income.
Food inflation
According to Confused.com, the average UK household spends around £119 a week on food. And this just seems to rise with inflation.
There are, however, ways to try and offset this by earning extra cash. But this doesn’t have to involve getting another job.
Instead, you can buy shares in businesses that return cash to investors as dividends. And a Stocks and Shares ISA is a great way to do this.
The big advantage of an ISA is that you don’t have to pay dividend tax. So you can keep 100% of whatever the company pays out.
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.
That can be a huge difference over time. But what could a realistic return look like for someone starting today?
How much could you earn?
Investors getting started might be surprised at what’s on offer. The FTSE 100 has stocks with dividend yields up to 8.15%.
At that rate, someone could earn £119 a week by investing £75,927. That’s using the tax advantages of a Stocks and Shares ISA to keep those returns.
So far, so good. The trouble, however, is that high dividend yields are often compensation for investing in risky businesses.
Sometimes, however, those risks are worth it. And I think there are some stocks where this might be the case.
Real estate investment trusts (REITs) are where I think these most frequently show up. And one from the FTSE 100 stands out to me.
6.61% yield
LondonMetric Property (LSE:LMP) leases warehouses and retail properties. And the stock comes with a 6.61% dividend yield.
So what’s the catch? One thing to pay attention to is the firm’s debt profile, with the average loan maturing in less than five years.
By contrast, the average lease has around 17 years to run. So there is what’s known as a duration risk – a mismatch between assets and liabilities.
If interest rates rise, the company might not be able to offset higher borrowing costs with rent increases. That’s something to keep an eye on.
How big is the threat?
LondonMetric’s leases have inflation-linked uplifts built in. This means rents increase over time, but it also helps with the duration risk.
Inflation is one of the most likely causes of higher interest rates. But the firm stands to benefit from this before debt costs increase.
Another thing to note is that the company’s debts don’t all expire together. So that means the exposure at any time is limited.
Long leases also make the firm more attractive to lenders. Having long-term contracted income should help it negotiate lower interest rates.
Lastly, the company is selling some of its peripheral assets. And the cash from this should help bring down debt levels.
The opportunity
A 6.6% yield means the amount needed for £119 a week in dividends is £93,615. That’s a lot and investors will want to look for a few stocks with that kind of sum.
LondonMetric Property, however, is a good place to start looking. And with inflation, sooner is probably better than later.
Should you invest £5,000 in LondonMetric Property 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 LondonMetric Property Plc made the list?
Stephen Wright has no position in any of the companies mentioned.
