One of my core investment goals is to boost my passive income through dividend-paying stocks. One pick I like the look of is The PRS REIT (LSE: PRSR). Here’s why!
Residential landlord
PRS is a residential landlord that purchases houses from builders and then rents them out to tenants. As it’s set up as a real estate investment trust (REIT), it must return 90% of profits to shareholders as dividends. I already own a few REITs to boost my passive income stream. I’m always on the lookout for more to help boost my wealth.
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PRS shares are trading for 88p as I write on 4 January. Over a 12-month period, they’re up 2% from 86p at this time last year. A falling share price could push up the yield and make it seem more attractive than it actually is. However, it is worth noting that PRS shares have meandered up and down in the past year due to macroeconomic volatility.
The investment case
From a bullish view, PRS is benefitting from the rising demand for rental properties. This is because many consumers are struggling to buy homes due to rising interest and mortgage rates as well as the current cost-of-living crisis. This could help boost performance and payouts.
Speaking of payouts, a dividend yield of 4.5% is higher than the FTSE 100 and FTSE 250 average payouts of 3.9% and 1.9%. However, it’s worth remembering dividends are never guaranteed and only paid at the discretion of the business.
PRS shares also look decent value for money on a price-to-earnings ratio of 11.
Moving to the bear case, rising interest rates are a bit of a double-edged sword for PRS. These higher rates and soaring inflation have made it harder for house builders to complete new homes. They’re then more costly for firms like PRS to buy, which could hurt growth aspirations. A lack of growth could hurt future payouts or see payouts stagnate. Ideally, as a potential investor, I’d like to see them gradually increase.
Another longer-term risk I’ll keep an eye on is macroeconomic volatility. If it cools and people can afford to buy once more, will demand for rental properties drop? If so, PRS’ performance and returns could be affected. There is a small chance of this, in my opinion.
Final thoughts
To conclude, I reckon PRS is a great dividend stock to buy now and hold for long-term passive income. The next time I have some spare cash to invest, I’ll be buying some shares for my holdings.
For me, PRS operates in a defensive sector. After all, people need homes to live in and not everyone is in a position to buy their own home. This defensive ability could help to boost performance and payouts. Furthermore, the shares currently look well priced and the level of return on offer is attractive too.
