1 FTSE 250 stock I’d be happy as Larry to buy and hold for passive income

Paul Summers checks out the latest earnings report from a FTSE 250 stock he thinks has great passive income credentials.

| 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.

A young Asian woman holding up her index finger

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.

A great thing about being a UK investor is the abundance of listed companies paying out passive income in the form of dividends.

Tritax Big Box (LSE: BBOX) is one example. The FTSE 250-listed real estate investment trust (REIT) owns and manages warehouses for some of the most recognisable retailers around. These include Tesco, M&S, and Amazon.

That might sound very dull. But it proved to be anything but a few years ago.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Boring but beautiful

As one might expect, this company hit a purple patch during the Covid-19 pandemic. The jump in online shopping and demand for logistics space caused the share price to rocket from just over 100p — when then-PM Boris Johnson first told us to get behind our doors — to 250p by the end of 2021.

That’s a 150% gain in less than two years. Oh, and the firm paid dividends over this period too.

Speaking of which…

Solid first half

Based on today’s (7 August) set of half-year numbers, I think Tritax’s passive income credentials look as strong as ever.

Contracted annual rent soared 34.7% higher to £303.4m over the period. A good dollop of this could be attributed to rent reviews and the acquisition of UK Commercial Property REIT. The latter also boosted the total value of its portfolio by 27.2% to £6.4bn.

The most significant detail for me, however, was the 4.3% hike to the half-year dividend to 3.65p. This is just the sort of thing any income investor wants to see!

The consensus among analysts is that the company will dish out 7.71p per share in total for FY24. At today’s share price, this becomes a forecast dividend yield of 4.8%. That’s more than the current 3.3% yield I’d get from a fund that tracked the FTSE 250.

Is it worth the extra risk?

It goes without saying that no income stream is guaranteed. This is the case here, even though its customers will be signed up to long lets.

Second, the stock isn’t cheap to buy. A price-to-earnings (P/E) ratio of 19 could spell trouble if inflation makes a comeback later this year. Should investors get skittish, there’s a chance that shares will sink again.

Created with Highcharts 11.4.3Tritax Big Box REIT Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

More growth ahead

However, one needs to balance all this with the long-term outlook. I think it would be a brave soul to bet that the boom in demand for logistics solutions is over. Frankly, any retailer without a thriving e-commerce division is asking for trouble.

Meeting that demand will require significant up-front investment by management. But the first cut to interest rates at the start of the month was a positive development.

Separately, Tritax has been “actively progressing potential opportunities” to expand its offering into power and data centres. That could become another catalyst for earnings growth if anything comes from it!

As a further way of mitigating risk, I’d spread my money around different stocks in different sectors. Diversification remains the only ‘free lunch’ going.

Green shoots

After a tricky couple of years, I think the tide might be turning for firms like Tritax.

If I had the cash and passive income were a priority, I’d be happy to buy today and hold for the long term.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Tesco Plc, and Tritax Big Box REIT Plc. 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

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s how much an ISA investor needs to put away to aim for a million

Harvey Jones looks at how long it would take an investor to potentially build a million pound portfolio, and says…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Here’s why I think a SIPP might be better to build a £1m portfolio than a Stocks and Shares ISA

Our writer lays out three advantages a self-invested personal pension (SIPP) can have over an ISA when it comes to…

Read more »

US Stock

£10,000 invested in NIO stock a month ago is already worth…

Jon Smith flags the short-term pop in NIO stock and outlines some of the reasons behind the move, with an…

Read more »

Investing Articles

£10,000 invested in Nvidia stock 1 month ago is now worth…

The Nvidia share price hasn't done well in 2025 so far, and this writer thinks investors considering the S&P 500…

Read more »

Investing Articles

£900 is enough to start investing in March!

Ben McPoland looks at an out-of-favour FTSE 100 stock that might be worth considering for someone who's ready to start…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 8% today after a profits warning, is the B&M share price now as cheap as its products?

It’s no surprise B&M's share price reacted badly to today's outlook. But is this an opportunity for investors to bag…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down 60% this month, is FTSE 250 stock John Wood Group worth a look?

FTSE 250 stock John Wood Group has been crushed in recent weeks. Could this be a major opportunity for long-term…

Read more »

Dividend Shares

I asked ChatGPT for the best FTSE dividend stock to buy now and this is what it told me

Jon Smith turns to AI to pick himself the best dividend stock in the market now and compares it to…

Read more »