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Even though most people look at a stock’s dividend yield first, there are other metrics to consider before buying an income stock. One key point is to consider a UK share’s track record of paying out income in the past. Even though it doesn’t guarantee future payments, it’s a good sign.
Here are two ideas I like right now.
A safe pair of hands?
First up is the Murray Income Trust (LSE:MUT). The stock has a current dividend yield of 4.41%, which hasn’t fallen below 4% for the past five years. It has 26 years’ worth of consecutive dividend growth, making it one of the most reliable in the FTSE 250.
For those unfamiliar, the business is an investment trust that aims to provide a high and growing income alongside capital growth. It does this by investing mainly in large, established UK-listed companies across almost all sectors. The trust makes money by collecting dividends from the companies it owns, and hopefully through capital appreciation if those shares rise in value.
As a result, the dividend is sustainable because it’s based on a variety of businesses paying, which the trust simply collects. Therefore, it’s lower risk than if the income were solely dependent on one firm.
Another reason to like the stock for income is due to the structure of investment trusts. Regulation allows them to retain some income in reserve during good years and use it to support dividends when markets are tougher. For income investors, that smoothing effect can be incredibly valuable and is a key reason why payouts tend to be more consistent than many individual shares.
In terms of risk, the five top holdings account for 25.1% of the overall portfolio. That’s quite concentrated, so if any of these underperform, it could be a significant drag on performance.
Stable tenants
Another stock is Primary Health Properties (LSE:PHP). It can boast 25 years’ worth of consecutive dividend growth, with a dividend yield of 7.79%. Over the past year, the share price has fallen by a modest 2%.
The recent share price weakness largely stems from macro forces rather than company-specific problems. As a real estate investment trust (REIT), the firm is highly sensitive to interest rates. Concerns about higher UK rates driven by energy inflation have weighed on the stock, which remains a risk going forward.
However, I still believe it’s a great income stock to consider. Its dividends are underpinned by government-backed rental income, with most tenants NHS-related. In my eyes, this makes cash flows about as defensive as they come.
Looking ahead, the outlook appears encouraging. Demand for modern primary healthcare facilities is rising, driven by an ageing population and a structural shift away from hospitals towards community-based care. That should keep the dividend strong.
Overall, I think both stocks have strong income potential going forward, which supports their strong track records and could be considered by investors.
