Equity investing is inherently exciting. It offers the potential for high returns, innovation-driven growth, and the thrill of backing transformative companies. Who doesn’t want to see their personal wealth grow?

However, there is more to investing than simple capital appreciation. For many investors getting an income from their investment portfolio is as, if not more, important.

Unlike capital appreciation, which relies on selling assets for profit, an income-generating portfolio provides a steady stream of cash flows which can be used by investors for a variety of purposes, for example to help cover living expenses, reinvest for growth, or supplement other income sources.

Although cash and short-term corporate bond yields might look appealing today as interest rates remain near multi-year highs, it is important to remember that these investments offer a fixed income, not growth income. If the Bank of England (BoE) continues to reduce interest rates this year, as seems likely, the yields on offer will also fall.

So when building an income portfolio, it’s important to consider all income-producing asset classes and diversify, just as you would any other portfolio.

Dividend-paying stocks are another popular asset class favoured by income investors. But let’s not forget real estate investment trusts (REITs) and listed infrastructure companies, which can also provide a regular income, with the potential for growth.

These sectors support essential industries and benefit from consistent cash flows. This makes them attractive during market volatility, when compared to operating companies whose sales are more sensitive to changes in consumer confidence and economic conditions.. They offer the potential for dividend growth linked to inflation, economic expansion, and rising demand for essential services – a key point today when the government is focusing on the UK’s infrastructure development.

Let’s take a look at the benefits in more detail:

1. Inflation-linked income growth

One of the key benefits of investing in UK-listed REITs and infrastructure companies is their ability to deliver inflation-linked income. Many infrastructure assets, such as toll roads, utilities, and renewable energy projects, operate under regulatory frameworks or long-term contracts that allow them to increase their revenues in line with inflation.

Similarly, REITs, particularly those invested in sectors such as logistics and healthcare, often have leases that include rental escalations tied to inflation. This means that as the cost of living rises, so too can the income generated by these investments, helping investors maintain their purchasing power over time.

2. Dividend growth potential

Unlike fixed-income securities, which offer a static interest payment, REITs and infrastructure companies have the potential to grow their dividends over time. Many REITs reinvest some of their profits into acquiring new properties or developing existing assets, which can lead to higher rental income and, consequently, increased dividend distributions. Similarly, infrastructure companies benefit from long-term demand for essential services, allowing them to expand and enhance their earnings potential.

3. Exposure to essential and high-growth sectors

Listed infrastructure companies own and operate assets that are critical to everyday life, such as energy networks, water utilities, and transportation hubs. These assets tend to be resilient during economic downturns, providing a stable and growing income stream for investors. At the same time, REITs in high-growth sectors like logistics and data centres are benefiting from structural shifts, such as the rise of e-commerce and the increasing demand for digital infrastructure. These trends provide long-term opportunities for income growth that fixed-income investments cannot match.

4. Market liquidity and diversification benefits

Funds that invest in UK-listed REITs and infrastructure companies provide investors with the liquidity of publicly traded markets, making them more accessible compared to direct investments in physical real estate or private infrastructure projects. Additionally, these funds offer diversification across multiple assets, sectors, and geographies, reducing the risk associated with any single investment.

5. Attractive yields in a lower interest rate environment

As the BoE continues along the path of cutting the base rate, the yields on traditional fixed-income assets, such as government and corporate bonds, can become less appealing. In contrast, listed REITs and infrastructure funds often provide higher initial yields with the added benefit of income growth, making them an attractive alternative for income-focused investors.

For ISA investors looking for more than a fixed income, funds investing in UK-listed REITs and infrastructure companies could be an interesting option. With inflation-linked revenue streams, dividend growth potential, exposure to essential assets, and liquidity advantages, these investments offer a sustainable and resilient way to generate income over the long term.

Important information 

This article has been prepared by Gravis Advisory Limited (“GAL”) and is for information purposes only.   It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this article outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction and are treated as having represented that they are able to receive this article without contravention of any law or regulation in the jurisdiction in which they reside or conduct business.  

This article should not be considered as a recommendation, invitation or inducement that any investor should subscribe for, dispose of, or purchase any such securities or enter into any other transaction in a fund affiliated with GAL.   

This article has been prepared by GAL using all reasonable skill, care and diligence. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. 

Past performance is no guarantee of future performance.  

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