I’d buy 14,290 shares of this UK dividend stock for £100 a month in passive income

Investors looking to increase their passive income are truly blessed in the UK. That’s because there’s an abundance of options to choose from, both in the blue-chip FTSE 100 and mid-cap FTSE 250.

One of my favourites from the latter is BBGI Global Infrastructure (LSE: BBGI). Here’s why I recently bought a few more shares of this investment trust.

Stable income streams

BBGI specialises in social infrastructure projects through long-term public-private partnership and private finance initiative contracts. It has 56 portfolio assets, including motorways, bridges, hospitals, and schools.

These provide government-backed, inflation-linked income streams. Its partners are creditworthy public sector entities in countries with solid credit ratings (AA to AAA), such as Australia, Canada, Germany, the Netherlands, Norway, the UK, and US.

While I like this geographic diversification, these are locations where interest rates are high. And this has been a headwind for BBGI as infrastructure investments and valuations are sensitive to rate changes.

Also, higher rates reduce the attractiveness of its dividend yield relative to other investments. While I expect these challenges to ease as interest rates fall, they’re worth bearing in mind. Inflation could always return.

Covered dividend

At the end of June, there was no structural gearing at group level and no cash drawings on a revolving credit facility. The trust had net cash of £20.6m.

It reaffirmed its 6% dividend growth target for FY24, with a further 2% growth planned for FY25. And it expects its cash flow to be 1.3 to 1.4 times this year’s payout. So the dividend looks secure.

Over the medium term, we expect cashflows to continue to support a healthy dividend cover and provide ample headroom to sustain a progressive dividend policy well into the future.

Non-executive chair Sarah Whitney, H1 2024 earnings report

Earning passive income

At 136p, the current share price offers an attractive forward dividend yield of 6.2%.

This means a £19,434 investment in my ISA would get me around 14,290 shares, enough to pay the equivalent of £100 a month in tax-free passive income.

Moreover, the shares are trading at a 10% discount to net asset value. This compares to a five-year average premium of about 12%. I think this stock could be a steal for long-term investors like myself.

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Foolish takeaway

High levels of public debt combined with rising populations and the growing need for new infrastructure projects means specialist investors like BBGI are well-positioned to succeed.

Deglobalisation is a megatrend that will require the onshoring of US manufacturing and an increased focus on energy security, driving significant demand for private infrastructure investments.

Meanwhile, the EU is aiming for Europe to become the first climate-neutral continent. The trust says this presents “a continuous flow of pipeline opportunities in the core infrastructure space“.

Finally, the Australian government is committed to investing A$120bn on projects over 10 years.

Even without further acquisitions though, management says the portfolio could continue to generate a rising dividend for the next 15 years.

While no payout is ever truly guaranteed, I’d be very surprised if this one was scrapped. I’d happily buy more shares with spare cash for a diversified portfolio.

This post was originally published on Motley Fool