One way I look to boost my passive income is through dividend-paying stocks. One that caught my eye recently is Custodian REIT (LSE: CREI). Let’s take a closer look at the bull and bear aspects of the company.
Passive income opportunity
As a reminder, a real estate investment trust (REIT) is a business that owns and operates income-generating real estate. These companies, including Custodian, can possess many different types of properties such as residential, commercial, and industrial to yield rental income. The beauty of REITs for me is that 90% of income must be paid to shareholders.
So let’s take a look at Custodian then. Its assets are quite diversified when it comes to property type and geography. Some of the types of property it holds across the country include industrial, retail warehouses, office blocks and high street. This diversification is an appealing factor to me because it can protect me from a downturn in one industry. Any shortfall in, say, the commercial property market could be offset by a burgeoning residential market, for example.
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What level of return am I looking at if I purchased Custodian shares? At present, its dividend yield stands just short of 6%. This is higher than the FTSE 100 average of between 3%-4%. This is an attractive level of return to a passive income seeker such as myself.
The next reason Custodian shares caught my attention recently is I believe shares are trading cheaply. At present, they are trading for 93p on a price-to-earnings ratio of just 6. At this point in time last year, the shares were trading for 6% higher at 99p. I am not worried about this small drop off in share price. In fact, I view it as an opportunity to pick up shares cheaper than I may have in the past.
Risks and what I’m doing now
A major part of my investing strategy is to consider any risks involved when purchasing a stock as well as the bullish aspects.
When it comes to Custodian, although the passive income opportunity is appealing, I must remember that dividends are never guaranteed. They are paid at the discretion of the business and any downturn in performance could result in them being scrapped to help conserve cash.
Next, I believe that economic volatility is a major risk involved when considering property stocks. During tough economic times or a recession, demand for property as well as rental income could be negatively affected. In turn, this could impact performance and shareholder returns. I also believe the current economic issues such as soaring inflation have pulled Custodian’s share price back in the past six months as highlighted by the chart above.
Upon reviewing the positives and negatives of Custodian shares, I have decided I would be willing to add Custodian shares to my portfolio. I believe they represent a good passive income opportunity for my holdings and could boost my wealth in the long term.
