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I don’t have unlimited funds to invest in UK shares. But here are two top passive income stocks I’ll be looking to buy when I have cash to spare.
The PRS REIT
Residential rents in the UK continue to soar. And it looks like they’ll continue climbing as supply problems worsen, boosting income at corporate landlords like The PRS REIT (LSE:PRSR).
Weak housebuilding rates mean that new supply is failing to keep up with renter demand. And this isn’t the only problem for the market. The exodus of buy-to-let investors is also tipped to worsen as private landlords steadily retire and sell up.
Estate agent Hamptons says that the number of landlords retiring each year had doubled between 2010 and 2022. And looking ahead, it predicts that 96,000 landlords will turn 65 every year, adding to the 924,000 people who are already over that age. In a short period of time, thousands of homes could disappear from the market.
This deteriorating supply and demand balance is illustrated in PRS REIT’s financials. Like-for-like rental income on stabilised sites rose to 5.7% for the 12 months to March 2023. This was up sharply from 4.8% in the prior 12-month period.
It’s little wonder that the company is expanding its homes portfolio, then. PRS REIT’s current development pipeline will grow the total to some 5,600, up from current levels of just over 5,000. And it’s likely that the business will keep expanding given the bright outlook.
Any changes to rental regulations could damage earnings growth here. But on balance I believe the potential benefits of owning this property stock outweigh the risks, especially at current prices.
Today PRS REIT trades on an ultra-low price-to-earnings growth (PEG) ratio of 0.7 for this financial year. It also carries a healthy 4.7% forward dividend yield.
Glencore
I already have exposure to the mining industry through my ownership of Rio Tinto shares. But the cheapness of Glencore’s (LSE:GLEN) share price is tempting me to open a position here too.
The FTSE 100 commodities producer and trader changes hands on a forward price-to-earnings (P/E) ratio of 7.7 times. It carries an attention-grabbing 9.7% dividend yield for 2023, too.
There is a close correlation between the demand for raw materials and the economy in general. So as high inflation persists and central banks raise rates, the outlook for commodities consumption remains highly uncertain.
Yet I believe this danger is baked into Glencore’s rock-bottom valuation. Instead I’m focused on the huge profits I could make as an investor as the next commodities supercycle gets under way.
In emerging markets, rising consumer electronics demand and rapid urbanisation are tipped to drive demand for materials like iron ore and copper. The transition towards cleaner energy sources across the globe should also supercharge offtake of many metals.
Glencore’s broad range of products gives it plenty of ways to capitalise on these themes, too. This is a stock I’d buy to hold for the next 10 years at least.
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