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Investing in dividend stocks is undoubtedly one of the easiest ways to generate passive income. When someone buys such a stock, they become a co-owner of the underlying business and receive cash payments from the company’s profits on a regular basis.
Here I am going to focus on a high yielding and under the radar UK dividend stock. An investment in this company could generate substantial passive income for years to come.
reliable income
The action in focus today is Primary health properties (LSE: PHP). It is a FTSE 250 company that owns a portfolio of healthcare properties (such as GP surgeries). Its portfolio currently consists of around 500 properties in the UK and Ireland.
Primary Health Properties has a brilliant dividend track record, having increased its payout to investors for more than 25 consecutive years.
And by 2023, the company is expected to pay out 6.73 pence per share in dividends to shareholders. That equates to a return of around 6.6% today at today’s share price of 102 pence.
Given that performance, here’s how much passive income the stock could generate (ignoring trading and platform fees) in the near term.
| Investment amount | No. of shares purchased | passive income per year |
| £1,000 | 980 | £66 |
| £5,000 | 4,901 | £330 |
| £10,000 | 9,803 | £660 |
The table shows that this action could be a source of income. If one were to invest £10k, they might be looking at an income of around £660 per year.
A safer dividend stock
Now the thing about dividends is that they are never guaranteed. Companies can cut, cancel or suspend them at any time.
So the forecast for 2023 may not be accurate.
And as with any dividend stock, one must consider stock price risk. If the company’s share price fell from here, it could wipe out any dividend gains.
All things considered though, I see Primary Health as a relatively safe dividend stock.
This is because a large part (around 90%) of the company’s rental income is backed by the UK government. Therefore, it is unlikely that you will find yourself in a situation where you cannot collect rent on your properties. Ultimately, your cash flows should be fairly secure and predictable.
Primary Health Properties is a strong business that generates progressive returns for shareholders by investing in long-term leased healthcare real estate, backed by a secure underlying covenant in which the majority of rental income is financed directly or indirectly by a government agency.
Primary health properties
In addition, the company is well placed to benefit from the aging of the UK population, which is likely to increase the demand for healthcare in the coming years.
Having said all of that, a key risk here is higher interest rates. Most of the company’s debt is fixed or covered (with a weighted average of more than seven years). However, higher borrowing costs could reduce earnings in the future. This could lead to lower dividend payments.
However, since the stock price has dropped significantly recently, I like the risk/reward setup these days. Right now, I see this stock as the best play for passive income.
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