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The UK stock market’s punching new record highs. Yet many top-quality income stocks, funds and investment trusts continue to pack enormous dividend yields.
Take the following London-listed assets, for instance:
- The Renewables Infrastructure Group (LSE:TRIG), whose forward dividend yield’s 8.3%.
- iShares World Equity High Income ETF (LSE:WINC), which delivers a 9.8% corresponding yield.
- Phoenix Group (LSE:PHNX), whose forward yield’s 8.3%.
Each of these yields is more than double the FTSE 100 average of 3.4%. And if broker forecasts are accurate, a £10,000 lump sum invested equally across them will yield an £880 passive income in 2025, and probably (in my opinion) a growing one beyond this year.
Here’s why each dividend share has significant long-term income potential and maybe worth considering.
The trust
The Renewables Infrastructure Group’s stock’s plummeted in popularity in the last half decade (down 33%). The threat of enduring high interest rates and changing global green energy policy has dampened investor confidence.
This remains a risk going forward. However, the subsequent fall in sector share prices leaves attractive value, in my book. The Group boasts that enormous 8%+ dividend yield. At 88.8p, it also trades at a 20.7% discount to its net asset value (NAV) per share.
I like this particular share given its relatively low risk profile versus many sector rivals. Its assets are dotted across Europe, where policy towards renewable energy remains highly favourable. And they span multiple countries and technologies — namely wind, solar and battery storage — which reduces reliance in one area to drive profits.
I think the trust retains huge long-term investment potential as the climate emergency worsens.
The fund
The iShares World Equity High Income ETF offers a lucrative passive income and the beauty of diversification. With holdings in 313 dividend-paying shares, it can absorb individual shocks at group level and still deliver healthy returns.
The companies it holds span the whole of North America, Europe and Japan, and the portfolio includes market leaders across multiple industries — the list includes including Nvidia, Pfizer, Morgan Stanley and Pepsico. In addition, its holdings include US Treasuries and cash, giving the fund additional robustness.
Over time, I’m optimistic that the income shares it owns will deliver robust returns. But with high exposure to cyclical sectors like technology, financial services and industrials, it may also deliver disappointing capital gains during economic downturns.
The FTSE 100 share
The Footsie’s surge to record peaks means few income stocks now have yields north of 8%. Phoenix is one that’s retained this special status.
Persistent inflation and weak economic growth remain a danger to the financial services giant. While this threatens profits in the near term, City analysts don’t believe this will impact its progressive dividend policy — shareholder payouts have risen each year since 2018.
This reflects Phoenix’s excellent cash generation and balance sheet, which allowed dividends to keep growing even when the pandemic clobbered earnings. Today its Solvency II capital ratio is 172%, well above its target range of 140-180%.
I expect it to remain an impressive FTSE 100 dividend payer, as its protection and pensions markets rapidly expand and drive cash flows.
