Can these real estate investment trusts help you to achieve financial independence?

Paul Summers runs the rule on the latest set of figures from two popular real estate investment trusts.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Real estate investment trusts (or REITs for short) are understandably popular with investors thanks to their commitment to returning a large proportion of profits to shareholders in the form of dividends.

With this in mind, let’s look at two examples — both of which reported interim numbers to the market this morning — and ask whether either can help you achieve financial independence.

Massive demand

A huge rise in demand for warehouse space from blue-chip companies over the last few years has driven many investors to build positions in Tritax Big Box (LSE: BBOX). The £2bn cap trust owns, manages and develops logistics facilities in the UK and counts Tesco, Unilever and Marks & Spencer among its tenants.

Should you invest £1,000 in Tritax Big Box right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tritax Big Box made the list?

See the 6 stocks

Over the first six months of the year, the trust’s net asset value (NAV) grew by 3.3% to 133.3p per share. Pre-tax profits soared by just under 50% to £80.53m helping it to outperform the return generated by the benchmark UK Global Real Estate Index. 

At £2.1bn, Tritax’s total portfolio is now valued just under 11% more than it was at the end of 2016. During the interim period, it acquired three new sites and two new customers. The trust now owns 38 assets (covering almost 20m sq ft of space), all of which were let or pre-let and income producing during six months to the end of June.

Looking ahead, I see no reason why it shouldn’t continue to benefit from the explosion in online retail and wholeheartedly agree with the trust’s Fund Manager, Colin Godfrey, that the development of this logistics market “remains in its infancy“.

So, how about those dividends? Today, Tritax declared a payout of 3.2p — 3.2% higher than that declared for the previous six-month period — and remains on track to hit a target of 6.4p per share for the full year. At today’s share price, this would equate to a yield of around 4.3%. 

Despite trading at a premium (149p), I think Tritax would be a great purchase for any investor committed to achieving financial freedom through dividend reinvestment over the medium-to-long term. 

Vulnerable to Brexit?

Also reporting interim results today was Derwent London (LSE: DLN) which owns and manages a £4.8bn portfolio of roughly 6.2m sq ft in the capital’s West End and City borders.

Over the six-month period to the end of June, its NAV per share rose 0.9% to 3,582p. Net rental income increased by 9.2% to almost £80m compared to the same period in 2016 with the vacancy rate of its portfolio falling from 2.6% to 1.9%.

Thanks to £500m of disposals or forward sales above book values so far this year, Derwent claims to have a “robust” financial position. Net debt fell by 19% over the interim period. The trust also boasts cash and undrawn facilities of up to £446m.

Despite all this, the shares aren’t for me.

While today’s 25% hike to the dividend is undeniably attractive, Derwent’s forecast 2.4% yield for the year is far lower than that offered by Tritax. Thanks to its focus on owning assets in the capital, the former also presents as a riskier buy in my opinion, particularly as we crawl ever closer to our scheduled departure from the EU in March 2019. With so much political uncertainty abound, the current valuation of 32 times forward earnings just feels too rich.

Should you buy Tritax Big Box now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Close-up of British bank notes
Investing Articles

£20,000 in savings? Here’s how it could be used to target a £913 second income each month

Christopher Ruane walks through some practicalities of how an idle £20k could be the foundation for a sizeable long-term second…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 steps to building monthly passive income with a spare £10k

Christopher explains how an investor could aim to use some spare cash to start building regular passive income streams through…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Tesla’s struggling. Could NIO stock benefit?

NIO stock has moved up very slightly this year, while Tesla has crashed. Our writer considers whether it might be…

Read more »

Two employees sat at desk welcoming customer to a Tesla car showroom
Investing Articles

Could Tesla stock be a brilliant bargain in plain sight?

Christopher Ruane sees some things to like about Tesla, but as its vehicle revenues have gone into sharp decline, is…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

3 cheap FTSE 250 stocks with big dividends to consider buying right now

The FTSE 250's loaded with so many big dividend yields it's hard to know where to start. These three have…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 585%, could Rolls-Royce shares still go higher?

Christopher Ruane likes the Rolls-Royce business but is not so convinced by the value its current share price offers him.…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

I reckon a bull market’s coming! Here’s what I’m buying for my Stocks and Shares ISA

Hoping to capitalise on what he believes is an undervalued UK stock market, our writer’s added more of this FTSE…

Read more »

piggy bank, searching with binoculars
Investing Articles

The UK stock market looks undervalued to me. Here’s 1 growth stock to consider for a SIPP

Our writer explains why he thinks the UK stock market’s currently in bargain territory, and identifies one share potentially worthy…

Read more »