Image source: Getty Images
The UK stock market has long been a stunning source of passive income. However, we also know that dividends from companies we own stakes in can never be guaranteed. Even the biggest businesses are sometimes forced to reduce or cut their cash distributions.
But this is precisely why I think it makes sense to own a basket of stocks in different sectors rather than depend on one big-hitter from the FTSE 100.
Monster yield
The stock I’m focusing on today is actually a tax-advantaged Real Estate Investment Trust (REIT) from the FTSE 250 that invests in bricks and mortar.
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.
What sort of real estate? Well, its full name gives this away. The Supermarket Income REIT (LSE: SUPR) invests in the buildings occupied by some of the UK’s biggest grocers.
We’re talking listed titans such as Tesco, Marks & Spencer and Sainsbury’s. In total, its portfolio comprises 131 stores, let mostly on long, inflation-linked leases.
Now, we could always buy stock in those individual companies. Indeed, the first two have seen their share prices significantly outperform the market in 2026. But we’re focused on passive income here, not growth. As I type, Sainsbury’s dividend yield stands at 4.2%, while Tesco comes in at 3%. Marks & Spencer’s yield is just 1.5%.
In sharp contrast, the trust yields a stonking 7.5%! This significant difference is because REITs are legally obliged to pay out at least 90% of their net rental profit each year.
So what’s the catch?
Keep an eye on interest rates
As attractive as all this is, it’s worth remembering there’s no sure thing in investing. A great yield becomes irrelevant if the value of the trust drops significantly.
By far the biggest concern, for me at least, is this company’s exposure to interest rates. Since the trust borrows money to fund the purchase of properties, it could mean that any refinancing becomes more expensive. Moreover, the value of those stores can always fall.
Of interest, the trust reported a loan-to-value ratio of 43.9% in the year to June. This was up considerably from the 31.1% recorded the year before. That’s still fine, but it’s worth keeping an eye on, especially as interest rates are expected to rise.
Safety in numbers
Despite the above, I still think this is one for income-focused investors to ponder owning. As defensive businesses go, this must surely rank well. We always need access to food, regardless of how the economy’s faring.
The introduction of online grocery shopping hasn’t yet significantly impacted the need for physical retail space either. Regardless, the trust prioritises investing in omnichannel stores — those that have customers walking through the doors but also operate as last-mile fulfilment centres.
The fact that this trust is nicely diversified across the sector also provides a nice buffer for dividends. This is something that those owning shares in any individual grocer won’t have.
But I also wouldn’t stop here. For those determined to generate a second income using their investment portfolio, we’ve found several other opportunities in the UK stock market.
What income stock do we like better than Supermarket Income REIT Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at an income share we think is worth your time.
Paul Summers has no position in any of the shares mentioned.
This story originally appeared on Motley Fool
