2 REITs I’d buy for a lifetime of passive income!

I think these REITs could help to supercharge the dividend income I receive in the coming years. Give me just a couple of minutes to explain why.

| 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.

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings

Image source: Getty Images

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.

Investing in real estate investment trusts (or REITs) can be an effective way to make long-term passive income.

Like any property stock, these businesses can raise rents to protect profits from inflationary erosion. But these specific businesses are required to pay at least nine-tenths of annual profits from their rental operations out in the form of dividends.

Tax rules governing their dividends are more complex than with other UK shares. And investors should consider their own personal circumstances before jumping in. But the 90% rule means they can still be excellent ways to make a second income.

Here are two top REITS I’ll be looking to buy when I have spare cash to invest.

Unite Group

There isn’t enough living space to accommodate Britain’s growing student population. A weak construction pipeline suggests that this phenomenon will persist long into the future too.

So I think Unite Group (LSE:UTG) could be a great investment for long-term dividend income. Rents here grew a healthy 3.5% for the 2022/23 academic year while occupancy levels hit at an impressive 99%.

Demand for student accommodation is especially strong from overseas. So it’s encouraging for Unite that this demographic is tipped to expand rapidly. University clearing service UCAS says that “the volume of international undergraduate applicants will increase by 46% to 208,500 by 2026.”

I’m mindful that earnings here could be damaged by the cost-of-living crisis. The Observer reported that a fifth of attendees at Russell Group Student Unions universities are considering quitting due to money pressures. It’s an issue that could impact future academic years too.

Yet on balance, I think Unite remains an attractive buy for patient investors like me. The company is rebuilding dividends strongly following the Covid-19 crisis (the full-year reward rose 48% last year, to 32.7p). And City analysts expect additional dividend growth in 2023, driving the yield to a decent 3.8%.

Big Yellow Group

The self-storage market is another property segment suffering from a severe supply crunch. This is why  Big Yellow Group (LSE:BYG) — a REIT whose average rents leapt 10% between October and December — is near the top of my stocks wishlist.

Demand for extra space is surging in the UK. And it’s rising for a variety of reasons, which in turn reduces the risks to the company’s revenues forecasts.

Increasing urbanisation is one reason (Statista analysts say that urbanisation has risen 3% over the past decade). Then there’s downsizing by older homeowners, a buoyant residentials market, and the rise of e-commerce. These market drivers look set to continue long into the future.

Pleasingly, Big Yellow has a strong development pipeline that should help it exploit the favourable trading environment. Today it owns 108 self-storage hubs and has a pipeline for 11 more, comprising a total of 900,000 square feet of space.

For the years to March 2023 and 2024, Big Yellow’s dividend yields sit at 3.8% and 3.9%, respectively. It’s true that the current property market downturn could hit earnings. But I still expect it to be a solid dividend payer now and in the future.

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.

Royston Wild has no position in any of the 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

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »

Investing Articles

Why I’ve just sold two of the largest investments in my Stocks and Shares ISA

Stephen Wright has been making room for a new addition to his Stocks and Shares ISA. What is it and…

Read more »

Investing Articles

2 UK shares I’m avoiding like the plague in today’s stock market

Stephen Wright is a big fan of UK shares. But both the FTSE 100 and the FTSE 250 contain companies…

Read more »

Investing Articles

At 538p, is the Rolls-Royce share price really that expensive?

The Rolls-Royce share price has continued its incredible post-pandemic rally causing many to ask whether the stock’s overvalued. Our writer…

Read more »

Investing Articles

With yields over 8.8%, which of the FTSE 100’s top 5 passive income stocks do I think is the best?

These five passive income stocks are all yielding more than 8.8%. Our writer considers which of them (if any) would…

Read more »