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I'm always looking for high-yield dividend stocks that have the potential to increase my passive income in the long term.
However, I prefer to find some in the London Stock Exchange (LSE) which could be undervalued. This is because I can then possibly benefit from the lucrative double phenomenon of a growing dividend. and Share price.
Here's one FTSE 250 stocks that have been on my buy list for a few months and that I finally intend to invest in soon.
A cheap infrastructure fund
BBGI Global Infrastructure (LSE: BBGI) is an investment trust that owns and operates 56 projects in the UK, North America, Australia and Europe. These include schools, hospitals, fire stations and toll roads. It collects revenue from these and pays a large portion of it to shareholders.
What I love here is that the company's contracted revenue comes from public-private partnerships. That is, from a public authority or government. Needless to say, this should make the income much more secure than most other sources.
At the end of June, a very healthy 99.4% of the portfolio was operational.
Even better, these assets are available at a 6.4% discount to net asset value per share. Historically speaking, this is rare and could offer long-term investors the opportunity to invest in high-quality assets at a discount.
Rate cut risks
This valuation anomaly is due to higher interest rates, to which the infrastructure fund sector is very sensitive. Obviously, higher rates make financing infrastructure projects much more expensive, as well as increasing the attractiveness of other income-generating assets beyond stocks.
Consequently, the share price is down around 23% in the last 18 months. A recovery here is based on a drop in interest rates. And that obviously depends on the fall in inflation.
However, American and British military planes have just begun bombing more than a dozen sites used by the Iranian-backed Houthis in Yemen. Chaos in and around shipping lanes is the sort of thing that can drive up oil prices, and this could cause a spike in UK consumer inflation and delay any rate cuts.
I think this poses a risk to BBGI's share price, at least in the coming months. As a long-term investor, this doesn't worry me much, but it's worth noting.
Thousand dollars a year in passive income
This year, BBGI is expected to pay 8.40 pence per share. Based on the January 12 share price of 136p, the stock has a forward dividend yield of 6.2%.
Specifically, this means you would need around 11,911 shares to aim for £1,000 in annual passive income. These shares would cost me approximately £16,200.
While no dividend is guaranteed, I am reassured by the trust's strong track record of reliable and growing income dating back to 2012.
Additionally, the dividends are fully covered by cash and there is minimal debt to worry about in this higher rate environment.
Due to the low risk portfolio, I think this is an excellent stock for investors to consider. And I fully believe the stock price will recover over time.
That's why I'm eager to add it to my income portfolio in the coming weeks.
