The UK stock market’s home to some of the most generous dividend shares on the planet, making it remarkably easy to unlock a chunky second income almost overnight.
While the FTSE 100 as a whole only yields around 3% today, looking beyond index funds opens up a world of considerably higher-paying opportunities. One standout example currently pays enough to turn a brand new £20,000 ISA into roughly £1,436 of instant passive income.
Meet the REIT behind this yield
Supermarket Income REIT (LSE:SUPR) buys supermarket buildings and leases them back to major grocery chains like Tesco and Sainsbury’s on long-term contracts. And it uses this recurring rental income to pay a pretty impressive dividend that’s been raised every year for eight years in a row, now yielding 7.18%.
That’s certainly an impressive track record. And even better, since supermarkets rarely close their doors even during tough economic times, this commercial landlord enjoys an unusually dependable stream of rental cash flow even when economic slowdowns come knocking.
But if that’s the case, why’s the yield so high?
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Is the dividend actually built on solid ground?
Experienced investors know that a high dividend yield is often a warning sign of potentially significant risks. And looking at the group’s latest results, in the second half of 2025, there’s a bit of a mixed picture.
On the positive side, the portfolio’s value jumped 20% to £2bn, occupancy sits at a perfect 100%, and management raised its minimum dividend growth target to 2% a year from 2027 onwards. CEO Rob Abraham’s team also cut overhead costs by 32% after internalising management, and cost savings are already helping offset rising interest expenses on the group’s debt.
Needless to say, that’s all pretty encouraging news. And yet at the same time, net rental income actually fell by 2% to £57m. Digging deeper, this appears to have been caused by timing gaps around proceeds from various joint ventures. But it’s dragged the dividend coverage ratio down to just 0.88.
In other words, the business is seemingly paying out more in dividends than it’s bringing in – a clear red flag.
Where things get complicated
Supermarket Income REIT’s dividend coverage issue doesn’t stem from a weakened rental income stream. Instead, it comes from a debt-heavy balance sheet that’s become notably more expensive to service in recent years, thanks to higher interest rates.
However, this debt hasn’t been wasted. Management’s been aggressively investing in acquiring new property assets to grow its rental portfolio and, in turn, cash flows. Furthermore, just last month, the company sucessfully refinanced £445m of its outstanding loans, unlocking notable savings in the process.
What does this mean for investors? So long as the REIT’s recent acquisitions live up to performance expectations and cash flows keep growing, interest expenses are on track to fall while dividend coverage recovers to a healthier level.
Obviously, this isn’t a guaranteed outcome, and it’s why the yield’s so high. But for investors comfortable with taking on higher risk and looking for a resilient dividend-paying enterprise offering a generous payout, Supermarket Income REIT could merit a closer look.
Yet, there’s an even better REIT that’s caught my eye…
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Zaven Boyrazian does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
