Earning passive income through real estate doesn’t have to be as complicated as buying a property, renting it out, and then having the hassle of managing it.
Instead, I look for real estate investment trusts (REITs), which offer me the opportunity of owning just a slice of a large market of rental properties. One of my watchlist favourites is Big Yellow Group (LSE:BYG), which is in the business of storage rental units.
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Should you invest £1,000 in Big Yellow Group Plc right now?
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Expanding my dividend portfolio
At the moment, I only own one REIT, which is called Alexandria Real Estate. However, I’m considering expanding my dividend holdings, and I like Big Yellow Group because it’s known as being relatively recession-resistant. Housing markets can rise and fall, but storage tends to stay quite stable (although that’s not guaranteed, of course).
The great thing about developing a passive income portfolio is that the dividends help massively with cash flow. For instance, while flashy tech shares may grow more in price, dividends from the so-called Magnificent Seven aren’t that attractive.
On the other hand, Big Yellow has a juicy dividend yield of 4%. That’s not the highest on the market, but I think we have to remember that it’s quite rare for a good dividend stock to also be climbing steadily in price. This investment has risen nearly 150% over the past 10 years.
Where could the investment be in 12 months?
Analysts say that Big Yellow Group shares could be worth 5% more in 12 months. That means that if I invest now, I could be getting a total return of a 4% yield and 5% price growth, a total of 9% in just a year.
I think there’s a chance that could happen because its price-to-earnings ratio is just 9.5. The industry average is 17, so I think I’m definitely getting a good deal.
Slow and steady wins the race
I’m considering this investment because it offers cash flow in the form of dividends while still offering competitive returns.
Some of the best investors in the world, like Warren Buffett, choose the slower approach to building wealth. It might be tempting to get involved in all the big gains in big tech, like buying a big stake in Nvidia; however, that’s not always the wisest move.
Nvidia has a jaw-dropping price-to-earnings ratio of 63. It also pays essentially no dividend, with a yield of just 0.02%. That makes it prone to volatility,
That’s why sometimes I like to choose less risky shares, and Big Yellow might fit the bill.
The drawbacks
Of course, just because the shares have gone up in price in the past, that doesn’t mean this will continue. Also, while a 9% total return sounds attractive, it’s not what elite investors would consider ‘market-beating’ and it’s not guaranteed. Some investors in the small-cap world get 50% returns a year. Buffett is famous for achieving 20% returns a year in large caps.
Furthermore, the company generates all of its revenue from the UK. The lack of geographic diversification makes it vulnerable to fluctuations in the British economy. To protect from this risk, holding a basket of 10 to 15 different investments in my portfolio is critical.
It’s a possible buy for me
I’m considering buying Big Yellow because I love the stability I feel the company offers. Also, I need to expand my dividend portfolio, so I’m considering buying a small stake soon!
