The FTSE 100‘s packed with a huge range of cash-rich, market-leading companies boasting great dividend records. But I’m not impressed by the index’s average forward dividend yield of 3.5%. ISA investors can get much better yields today.
Take the following UK dividend stocks, for instance. Their forward dividend yields come to an average 10.2%.
| Dividend share | Dividend yield |
|---|---|
| Alternative Income REIT (LSE:AIRE) | 9.2% |
| Global X Nasdaq 100 Covered Call ETF (LSE:QYLD) | 11.1% |
It’s important to remember that dividend projections can often miss their targets. As we saw during the pandemic, even the most financially robust company can slash, suspend, or cancel shareholder payouts when crises come along.
However, if broker forecasts are correct, a £15,000 lump sum invested equally across these stocks could provide Stocks and Shares ISA investors with a £1,530 passive income this year alone.
Here’s why I think they’re worth serious consideration today.
A favourite fund
Exchange-traded funds (ETFs) can provide terrific returns while also helping investors effectively manage risk. In the case of the Global X Nasdaq 100 Covered Call ETF, individuals spread their cash across a wide range of the largest US tech companies.
The fund generates income by purchasing Nasdaq 100 shares and then selling covered calls on them. It then returns this cash to shareholders by way of dividends.
An added benefit is that the fund provides exposure to the so-called Magnificent Seven technology stocks (albeit with limited upside potential). Businesses like Nvidia, Microsoft and Alphabet have significant earnings opportunities to mine including quantum computing, autonomous vehicles and artificial intelligence (AI).
On a more sombre note, concerns over the disruptive impact of DeepSeek’s AI model could mean further volatility with the firm’s underlying holdings. It could also impact the premiums the fund collects from selling options, and by extension the dividends it distributes.
But on balance I think it’s still an attractive stock to consider, and especially for those with long-term investment strategies. Over extended timeframes, the impact of temporary market choppiness can be smoothed out.
Real estate star
Real estate investment trusts (REITs) can also be great investments for a passive income. These companies don’t pay corporation tax. And in return, they must pay at least 90% of rental profits out in dividends each year.
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.
This doesn’t necessarily guarantee a large and dependable dividend income however. Rent collection and site occupancy can slip during economic downturns, impacting rental earnings.
But well-diversified trusts like Alternative Income REIT can greatly reduce this risk. This particular one’s portfolio spans multiple cyclical and non-cyclical sectors including hotels, residential tower blocks, petrol stations, care homes and retail warehouses.
I also like this particular property share because its tenants are locked into extremely long contracts. As of June, its weighted average unexpired lease term (WAULT) was 16.5 years to the earlier of break and expiry.
What’s more, almost all of its tenants are locked into inflation-linked contracts, which substantially protects group earnings from rising costs. Almost 96% of its leases were linked to the retail price index (RPI) or consumer price index (CPI) as of June.
This post was originally published on Motley Fool
