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Dividend shares can be a great source of passive income. But as with any investment, it’s important to be careful when buying income stocks.
When I invest in dividend shares, I try to follow Warren Buffett’s approach. Rather than steadily investing in the same companies each month, I look to be aggressive when I think there’s an unusually good opportunity.
Right now, there are a few stocks on my radar. And I’m looking to buy them hand over fist when I have cash available.
Primary Health Properties
Top of my list is Primary Health Properties (LSE:PHP). The company makes its money by leasing primary care properties in the UK.
The shares are trading at a steep discount to where they were a year ago. The share price has fallen by 30% over the last 12 months and the stock has a dividend yield in excess of 6%.
Despite this, the company is performing well according to a couple of key metrics. Its occupancy rate is above 99% and it has collected 98% of the rent it was due so far this year.
In other words, the business is still generating strong cash despite its falling share price. Its rental income is actually growing, as a result of heavy investment in its properties.
No investment is ever risk-free, though, and there are a couple of things investors will want to keep an eye on. The biggest of these, in my view, is the company’s balance sheet.
Refurbishing and extending its properties has required capital and, with the company distributing its income as dividends, it has had to take on significant debt to do this. With interest rates rising, that might be a concern.
Overall, I think the stock is just too cheap to miss at today’s prices. If I had cash available, I’d be looking to buy as much of it as I could.
Citigroup
There’s a lot of uncertainty around Citigroup (NYSE:C) at the moment, which is weighing on the company’s share price. But I think this makes it a bargain that is too good to pass up right now.
Citigroup’s share price has fallen by 7% over the last year, meaning the stock currently has a dividend yield of around 4.5%. But the company has also been buying back its own shares, offering investors an additional return.
The stock has been faltering for a couple of reasons, but the main thing it comes down to is the company’s low return on equity. This measures a bank’s ability to generate a return on its customer deposits.
Citigroup has historically lagged its peers on this score. The company is selling off several of its less efficient operations to improve its overall performance, but there’s a risk this might be expensive and have limited effect.
Even with the uncertainty over the outcome of its restructuring, I think the share price is just too cheap. I’ve been buying the stock aggressively over the last year or so and I expect to continue.
