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Dividend shares are one of many easiest, strongest methods to construct a real second revenue. And with the cost-of-living disaster squeezing UK households more durable than ever, that further money stream issues much more in 2026 than it used to.
So for a newbie investor with £1,000 to place to work in the present day, what’s the neatest option to get began?
Yield isn’t all the things
It’s tempting to hunt for the best dividend yield available on the market and name it a day. However that’s typically a mistake. A sky-high yield is usually a warning signal quite than a present, particularly if it’s not backed by real money era.
What really issues way more is free money circulate – the surplus cash a enterprise generates after protecting its personal operating and enlargement prices.
Don’t neglect, an organization can solely preserve paying and rising its dividend if the money is absolutely coming in. And as such, it’s the companies with robust, rising free money circulate that have a tendency to supply way more dependable, steadily rising payouts over the long term versus these providing an enormous headline yield that’s typically unsustainable.
So which UK shares may match that description proper now?
A money machine hiding in plain sight?
Considered one of my favorite dividend shares from my passive revenue portfolio is Safestore Holdings (LSE:SAFE). The corporate’s Britain’s largest self-storage operator, and it’s a textbook instance of a extremely cash-generative enterprise mannequin.
As soon as a storage facility is constructed, the continued operating prices are comparatively low, whereas rental revenue retains rolling in month after month. That dynamic confirmed up clearly in June’s interim outcomes, the place internet money influx from working actions climbed 14.6% to £47.2m within the first half.
Income rose 6.9% to £120.6m, with underlying pre-tax income up 2.3% to £44.6m, sufficient for administration to nudge the interim dividend increased to 10.2p per share.
However with new shops beginning to ramp up, the agency’s seemingly on monitor to unlock an additional £30m-£35m in new recurring EBITDA within the coming years, paving the best way for much more dividend hikes sooner or later.
The place’s the danger?
No funding is ever risk-free. And despite the fact that I’m bullish on this enterprise, even I’ve to confess Safestore does have some weak spots. Web finance prices are climbing as elevated floating rates of interest proceed to chew, with administration now guiding for an additional £2m-£3m of prices this yr alone.
Occupancy in Paris has additionally dipped as Safestore’s personal retailer enlargement partially cannibalises present websites. And the mixed affect implies that dividend development has been fairly mediocre in recent times.
As beforehand talked about, that might quickly change because the group’s buildout of recent places begins to mature. But when rates of interest stay elevated, and even begin to rise once more, the added monetary strain may restrict administration’s skill to reward shareholders with the next dividend.
Nonetheless value contemplating?
At a 5% yield, Safestore received’t flip £1,000 right into a fortune in a single day, and no one ought to count on it to. However as a cash-generative, dividend-growing enterprise buying and selling throughout a number of European markets, it’s precisely the type of regular compounder that newbie revenue buyers might wish to examine additional.
And it’s not the one revenue inventory that’s trying quite promising proper now…
What revenue inventory can we like higher than Safestore Plc proper now?
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Zaven Boyrazian owns shares in Safestore Holdings.
