Four attractive UK income opportunities

Professional investor Mark Barnett of the Invesco Perpetual Income and Growth Investment Trust picks four UK stocks that should generate income that will grow above inflation.

Each week, a professional investor tells us where he'd put his money. This week: Mark Barnett, Perpetual Income and Growth Investment Trust.

The UK equity market offers one of the most attractive levels of income of all global equity markets. However, this income has traditionally been generated by a concentrated mix of large-cap stocks. I seek to create a diversified portfolio of income-generating companies with the potential to grow those payments ahead of inflation over time. The ability of investments to generate sustainable free cash flow and the attitude of company management towards shareholder distributions is crucial to success. Fortunately, within the UK market, there are some very interesting areas of opportunity.

Domestic firms hit by Brexit

One area that offers evident value is real estate, where political uncertainty has placed significant pressure on valuations. Within this sector, NewRiver Reit (LSE: NRR) stands out. This real estate investment trust offers highly diversified income from retailers that are growing (discounters and convenience stores) and are relatively resilient to online challenge. Roughly one fifth of the portfolio is pubs, while the top-ten retailers account for less than 15% of NewRiver's rental income and there is virtually no exposure to department stores.

Retailer Next (LSE: NXT) is another business operating within a Brexit-hit sector, while shares face the additional challenge of the pessimistic story around high-street retailers. However, the company is challenging this narrative. Next released encouraging full-year results in May that included a 15% rise in online sales evidence that the company's multi-channel offering allows it to see the growth of online shopping as an opportunity not a threat. Meanwhile, the increase in the annual dividend reaffirmed Next's focus on shareholder returns.

Fears about tobacco are overdone

Imperial Brands (LSE: IMB)

British American Tobacco (LSE: BATS)

Recommended

Carbon emissions trading: how to profit from the price of pollution
Funds

Carbon emissions trading: how to profit from the price of pollution

Carbon-emission allowances are still an esoteric market, but one that looks set to grow. This new fund could help you cash in.
21 Sep 2021
Three strong Asian stocks trading at bargain prices
Share tips

Three strong Asian stocks trading at bargain prices

Professional investor Nitin Bajaj of the Fidelity Asian Values investment trust picks three stocks that dominate their industries, earn good returns o…
20 Sep 2021
Share tips of the week – 17 September
Share tips

Share tips of the week – 17 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Sep 2021
Royal Mail will deliver for investors – here's how to play it
Trading

Royal Mail will deliver for investors – here's how to play it

Royal Mail Group has found its feet in the past 18 months and looks cheap. Matthew Partridge looks at how to trade the shares.
14 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021