I think real estate investment trusts (REITs) are an excellent way to earn dividends and boost wealth. This is because these income-producing property stocks must return 90% of profits to shareholders.
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I already own shares in a few REITs but I’ve got my eye on two more. These are Unite Group (LSE: UTG) and Segro (LSE: SGRO).
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Here’s why I’d buy some shares as soon as I can!
Student accommodation
Unite is one of the largest student housing providers in the UK.
The shares are up 1.5% over a 12-month period, from 951p at this time last year to current levels of 966p.
Despite my general bullishness towards Unite, there are risks that could hurt the business. To start with, a review into foreign student visas amid recent fraudulent applications has shone a spotlight on a potential money-spinner. Overseas students make up a big chunk of student beds in the UK. If the level of these type of tenants were to drop, it could hurt Unite’s performance and payouts.
Plus, continued macroeconomic volatility is something I’ll keep an eye on as it could hinder growth aspirations. For example, borrowing to buy new assets could be costlier due to higher interest rates.
Moving on to the good stuff, Unite is in a great position to benefit from the current imbalance of student beds across the UK. Simply put, demand for beds is outstripping supply by some distance. If Unite can continue to grow its already wide presence and use its immense brand power to plug this gap, performance and returns could soar.
Finally, a dividend yield of 3.8% is attractive, although I do understand dividends are never guaranteed.
Industrial and warehouse properties
Segro owns, manages, and develops industrial and warehousing assets across the UK and Europe. It serves a number of sectors, including e-commerce, transport, and film, to mention a few.
The shares are up 8% over a 12-month period. At this time last year, they were trading for 802p, and they currently trade for 866p.
Recent economic turbulence has hurt the firm, and this is an ongoing risk for the business. The threat of defaults, and slowing growth in the short term at least, is a worry. This is linked to wider volatility and the fact businesses using Segro’s properties are struggling themselves. In fact, Segro posted a loss in its most recent full-year results. However, the outlook ahead is still promising, in my view.
Segro’s wide presence, especially its diverse range of properties across the UK and Europe, and its established customer base, should help boost performance and returns. Brokers indicate that the firm’s performance moving forward could mean that the shares are expected to have a price-to-earnings ratio as low as eight next year. However, I’m conscious that forecasts don’t always come to fruition.
Plus, the current e-commerce boom shows no signs of slowing. In turn, I reckon demand for the properties Segro serves up should remain robust.
A dividend yield of 3.3% is enticing. Overall, a bit of short-term pain should be overcome by long-term returns as well as performance and growth, in my view.
