close
close

2 Top Passive Income Stocks to Consider Buying in May

Middle aged black man working at home office

Image source: Getty Images

The London Stock Exchange is full of brilliant passive income stocks. Here are two that I think will pay a huge – and growing – dividend now and in the future.

Safe as a house?

Construction giant Vistry Group (LSE:VTY) has huge growth potential, given the encouraging outlook for the UK property sector.

The short-term situation remains uncertain as mortgage rates rise again and the economy struggles. But house prices are expected to rise in the longer term as conditions improve and population growth drives demand for housing.

Real estate agent Savills believes the average property value will increase by £61,500 by 2028. Vistry’s decision to focus on partnerships puts it in a good position to also capitalize on this fertile landscape.

This will increase the company’s FTSE 250 completion figures in coming years. It will also help the builder better leverage the affordable home segment, where demand is particularly high.

Finally, Vistry’s partnership model will allow it to unlock greater liquidity. This is because local authorities and housing associations cover the majority of construction costs. This frees up cash that the company can use to invest in the business, as well as for shareholders.

With City analysts also forecasting a strong rebound over the next few years, dividends are expected to rise sharply through 2026, as shown in the table below.

Year

Divide by share

Dividend yield

2024

50.5p

3.9%

2025

67.3p

5.3%

2026

80.2p

6.3%

This means that Vistry shares’ dividend yield is accelerating above the FTSE 100 and FTSE 250 averages. These stand at 3.6% and 3.3% respectively.

Rental giant

Real estate giant The PRS REIT (LSE: PRSR) is not expected to increase its dividends as quickly over the next two years. But it’s yet another great income stock to consider, in my opinion.

This is due in part to its classification as a real estate investment trust (REIT). Industry rules mean he has to pay at least 90% of the annual profits from its rental operations are paid out in the form of dividends.

Please note that tax treatment depends on each customer’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. This is not tax advice nor does it constitute any form of tax advice.

This is also due to the reliable income the company receives from its tenants. Rent collection here stood at 99% in the six months to December 2023, illustrating the stability of residential rentals.

Finally, PRS is thriving as UK rental costs explode. The latest official data shows that average rents rose by 9% in the 12 months to February. This is the highest growth rate ever recorded.

Together, these qualities generally allow the company to offer an above-average (and rising) dividend yield, as shown below.

Year

Divide by share

Dividend yield

2024

4 p.m.

4.9%

2025

4.1

5%

2026

4.4p

5.4%

The PRS share price fell in 2024 as hopes for significant interest rate cuts faded. Higher rates lower the net asset values ​​(NAVs) of real estate stocks and, by extension, dampen profits.

Still, I think the potential dividends I could receive over the next few years make the company worth serious consideration today.

The article Top 2 Passive Income Stocks to Consider Buying in May appeared first on The Motley Fool UK.

More reading

Royston Wild has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed about companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a broad range of information makes us better investors.

Motley Fool UK 2024