2 passive income ideas for a Stocks and Shares ISA keeps showing up in conversations for a reason. The story below covers what is actually happening, where the trade-offs sit, and what a careful reader should take from it.
The London Stock Exchange is chock-a-block with dividend shares that pay passive income. Indeed, the challenge isn’t finding them, but actually choosing which ones to buy.
With this in mind, here are two passive income ideas from the FTSE 250 worth exploring for an ISA.
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.
Infrastructure
3i Infrastructure (LSE:3IN) is an investment trust that has stakes in unlisted infrastructure firms. Through these, it aims to provide shareholders with a medium-term total return of 8%-10% per year, including a progressive annual dividend.
To give an example, it first invested in Belgium’s TCR in 2016. Since then, this lessor of airport ground support equipment has grown tremendously, even with Covid throwing a huge spanner in the works. It now operates at more than 237 airports in over 24 countries.
In March, 3i Infrastructure sold its 71% stake in TCR for expected net proceeds of €1.14bn, crystallising around a 19% per annum return over the life of the investment. Needless to say, that’s excellent.
With €300m of this profit, it plans to take a majority stake in the Lefdal Mine Datacenter in Norway. It says this data centre campus has “80 megawatt of fully let capacity, 10-year availability-based contracts across its customer base, and an attractive earnings growth outlook“.
Unfortunately, one big fly in the ointment here is DNS:NET, a German telecoms provider. The trust’s currently assessing restructuring options for this holding, but there’s a risk it will be written down to zero when FY26 results are reported in July.
Despite this, 3i Infrastructure is still on track to deliver a 13.45p dividend. This would represent a 6.3% increase. For FY27, which has just started, analysts expect the dividend to rise to 14.3p.
At the current share price, this translates into a forward dividend yield of 4.3%. For a well-run infrastructure fund whose portfolio firms’ debt is mainly fixed rate or hedged, that’s an attractive starting yield.
Healthcare landlord
The second passive income idea is Primary Health Properties (LSE:PHP), which is the UK’s largest pureplay healthcare REIT. It has a £6bn portfolio of 1,142 properties, including GP surgeries, medical centres and private hospitals.
From these, it receives rent, most of which is distributed to shareholders in the form of dividends. 76% of rent is currently funded directly or indirectly by the UK and Irish governments, with another 13% coming from established private hospital operators.
Last year, adjusted earnings per share rose 4% while the dividend edged up 3% to 7.1p. For this year, Primary Health Properties is confident that it can increase this another 3% to 7.3p.
Assuming this is met, which of course is never entirely guaranteed, it would be the trust’s 30th consecutive year of dividend growth.
What’s more, after falling 11% since February, the stock’s forward-looking yield has risen to a very attractive 8%.
Of course, no company is perfect, as a disappointing 36% decline in its share price over five years shows. REITs are highly influenced by interest rates, so if borrowing costs head higher this adds risk.
However, with an ageing population and the government rolling out more community-based care, the long-term prospects for the healthcare sector look bright.
Plus, the REIT has teamed up with pension fund giant USS to grow its portfolio without shouldering all the capital.
