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£13,200 invested in this defensive stock bags me £1K of passive income!

Image source: Getty Images
Image source: Getty Images

Investing in good dividend-paying stocks could be the key to build a passive income stream, in my view.

Although dividends aren’t guaranteed, there are some quality picks out there with defensive operations that could bolster my wealth.

One example of this is Assura (LSE: AGR). Let’s say for the purposes of this article I had £13,200 to hand to buy some shares. With that investment, I could earn £1,000 in passive income annually based on its current dividend yield of 7.6%.

Here’s why I like the look of Assura!

Healthcare properties

Assura is a real estate investment trust (REIT). This means it is an income producing property business. What attracts me to REITs – and has been a big driver in me buying shares in other REITs – is that they must return 90% of profits to shareholders as dividends. In Assura’s case, it makes money from healthcare properties, such as GP surgeries.

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The shares haven’t had the best time recently. I reckon this is due to macroeconomic volatility hurting the property market due to higher than normal interest rates and inflationary pressures. Over a 12-month period, the shares are down 17% from 51p to current levels of 42p.

My investment case

Starting with the bull case, Assura’s defensive traits are a major draw, if you ask me. The fact the company rents many of its assets to the NHS could help to boost performance and payouts. A big reason for this is government contracts come with a level of safety and longevity. In addition to this, the chances of defaults are very small.

Furthermore, when you consider the current state of the NHS and the political landscape in the UK, Assura could find itself able to grow its portfolio, presence, and returns. The NHS is experiencing soaring demand for healthcare due to an ageing and growing population. This could be good news for the business and its future prospects.

From a bearish view, I’m wary of short to medium-term continued volatility. Higher interest rates could spell bad news for net asset values (NAV) and on borrowing levels, which can be higher for growth purposes, and costlier to pay down for existing liabilities. This could have an impact on performance, investor sentiment, and Assura’s levels of return.

Next, the changing face of the NHS is a worry. A lack of qualified staff is a concern for me. It’s all well and good having high demand and Assura providing lots of properties for the NHS, but if the state-backed healthcare provider doesn’t have the staff to run them, that’s bad news for Assura. I’ll keep an eye on this front.

Final thoughts

As with all stocks, there are pros and cons to consider. However, in this case, the positives outweigh the negatives by some margin in my eyes.

Assura’s defensive operations, combined with potential growth opportunities, look excellent. If I had the cash to buy some shares I would be willing to do so. I think the passive income opportunity looks like it could only grow.

The post £13,200 invested in this defensive stock bags me £1K of passive income! appeared first on The Motley Fool UK.

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Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2024