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A Stocks and Shares ISA is great for investors looking to earn a second income. And UK equities are really interesting.
Low valuations can mean high dividend yields. Especially in parts of the stock market where other investors arenât looking.
Under-the-radar
One name that often goes under investors’ radars is Alternative Income REIT (LSE:AIRE). Thatâs partly because itâs not a big company.
Itâs a real estate investment trust (REIT) with a really interesting portfolio. It includes industrial estates, care homes, and a power station.
The firm doesnât own as many assets as some larger REITs. And that naturally means a more concentrated tenant base. This can be a risk â its largest tenant accounts for 10% of its rent. That matters for a couple of reasons.Â
One is that it means a default would be a big deal. But it also means potential risk when leases expire.
Investing always involves risk â and thatâs the big one with Alternative Income REIT. But thereâs also a lot to like.
Why this stock?
The first point to note is that a mixed asset base offers investors instant diversification. And that can be valuable. It limits the overall impact of a downturn in any given industry. As an example, consider retail warehouses.
The industry has seen a lot of growth recently. But this has led to a lot of building, which creates a risk of oversupply.
For a more specialist operation, that might be a big issue. With Alternative Income REIT, however, the risk is more limited.
The firmâs size also means it can be selective about its portfolio. And this results in terrific occupancy and rent collection metrics.
The company itself might be small. But for ordinary investors, the income opportunity could be big.
A 7.64% dividend yield
Shares in Alternative Income REIT currently come with a 7.64% dividend yield. And that can be big for income investors.
The annual contribution limit in a Stocks and Shares ISA is £20,000. But a lot of investors â like me â put £4,000 into a Lifetime ISA.
That leaves £16,000. And a 7.65% dividend yield is enough to turn that into a £1,224 annual second income.
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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
This isnât to say investors should go all-in on the stock. Even with the inbuilt diversification, thatâs a risky strategy.
Looking to earn a strong return across a number of investments, however, can be a great idea. And Alternative Income is one to consider.
A high dividend yield is a sign that investors are wary of something. But sometimes, the potential rewards are worth the risks.
Final thoughts
Sometimes the best opportunities are to be found where others arenât looking. And that might be the case here. A £60m company doesnât necessarily stand out in a billion-pound world. But it doesnât need to for most investors.Â
The market cap might be small, but the dividend yield is big. And I think itâs well worth considering at todayâs prices.
The post How £16,000 can generate a second income in a Stocks and Shares ISA appeared first on The Motley Fool UK.
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Stephen Wright 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.
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