These UK shares offer excellent all-round value at current prices. Here’s why I think these dividend stocks could provide me with a healthy second income for years to come.
The PRS REIT
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Should you invest £1,000 in Legal & General right now?
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Residential rents in the UK continue to shoot higher. So snapping up shares in The PRS REIT (LSE:PRSR) could be a great way to generate passive income.
Like all real estate investment trusts (REITs), the business has to pay big dividends to its shareholders in exchange for certain tax perks. More specifically, it must pay a minimum of 90% of annual rental profits out in the form of dividends.
This explains why residential landlord PRS REIT carries a 4.9% dividend yield for 2023. This is some way above the FTSE 100 forward average of 3.7%.
The small-cap index share also offers attractive value from an earnings perspective. Its price-to-earnings (P/E) ratio sits at 19 for this year. This is well below a reading of 29 times that industry peer Grainger currently trades on.
A worsening supply imbalance in the UK rentals market is sending tenant costs through the roof (so to speak). Latest research from the Office for National Statistics showed average private rents increase 5.1% in the year to June. This was the fastest rate of growth since records began in 2016.
PRS REIT is thriving in this environment and last week described trading as “outstanding.” Like-for-like rental growth continues to speed up, coming in at 7.5% for the June quarter versus 5.7% and 5.1% in each of the previous two quarters.
Occupancy meanwhile stood at 97% in June and rent collection hit 99%. Higher-than-normal build costs pose a threat to earnings growth. But I still think the company is a top buy right now.
Legal & General Group
The Legal & General Group (LSE:LGEN) share price trades at a big discount to the FTSE 100 average of 14 times. Heavy share price weakness since the start of the year leaves it trading on a forward P/E ratio of just 8 times.
I used this recent fall as an opportunity to buy the company for my portfolio. Its excellent all-round value means I’m looking to add even more shares when I have cash to invest. The financial services giant also carries an enormous 8.8% dividend yield at current prices.
It’s true that tough economic conditions pose a threat to the business in the near term. In the current landscape demand for its life insurance and other products could wilt. Half-year results on 15 August will be watched carefully for signs of trouble.
But this hasn’t put me off as an investor. I buy shares for the long haul, and expect Legal & General to deliver exceptional returns as its markets grow. Better-than-expected results for 2022 fill me with confidence ahead of this month’s update too. Last year it grew operating profit 12% to £2.5bn.
Demand for retirement, protection and investment products should all rise strongly in the coming decades due to demographic changes. Changing consumer attitudes to financial planning should also drive business higher. And the FTSE 100 firm has the scale and the brand power to fully capitalise on this opportunity.
