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Shares are a tried and trusted way to generate income but it is good practice not to put all your eggs in one basket. If the company fails, both the share price and dividend payments may suffer.
Still, while diversification is the key, focusing on a specific stock can be a fun thought. Which companies offer reliability and peace of mind?
If I could only pick two stocks to go all in, it would be these.
The best of both worlds?
Health care is often considered a low-risk, non-cyclical market that remains in high demand with a growing and aging population. Real estate is a low-risk market but has potential for growth.
The two make a formidable team in the form of Basic Health Structures (LSE: PHP).
The real estate investment trust (REIT) has a portfolio of healthcare facilities serving 6m patients. That's around 9% of the UK population. And it pays solid dividends to boot, with a 6.7% yield and 27 years of consecutive growth.
To receive tax benefits, REITs are required to return 90% of profits to shareholders. In my opinion, that makes them a reliable option for long-term income. In addition, 89% of their rental properties are financed by government agencies.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice.
While health care is a defensive industry, real estate is more vulnerable. If the housing market slows, Primary Health's stock price could fall as well. There is evidence of this happening in 2007 during the housing market crash. Recently, the price was hurt when interest rates were raised in 2022. If similar events occur again, a decline in the share price may threaten dividend payments.
But previous recoveries have been quick so I feel that confidence is reliable. Over the past 20 years, it has delivered annual returns of 2.91%. Combined with an average yield of 5%, the total shareholder return has been approximately 8% per year on average.
Decades of profitable growth
City of London Investment Trust (LSE: CTY) holds the record for the longest uninterrupted period of profit growth. For 58 years, the trust has been increasing its annual dividend payments. At 4.72%, it does not have the highest yield in FTSE but its classification record is unmatched.
The trust invests mainly in leading UK companies. Among the top 10 partners are British brands known as Tesco, HSBCagain A shell. However, it is not entirely dependent on the local economy. Due to the international reach of the UK's largest firms, 60% of the income from its assets comes from overseas. This makes it immune to both industry-specific and region-specific risks.
However, it is not without danger. Recessions have hurt stocks in the past and will likely do so again. If fund managers make bad investment decisions, there can be losses. There is also a risk of loss due to exchange rate fluctuations of income earned abroad.
Over the past 30 years, the price has increased by an average of 3.88% per year. Combined with an average yield of 4%, long-term returns have been around 7.8% per year since the early 90s.
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