Real estate investment trusts (REITs) are designed to support investors in building a reliable second income.
In exchange for breaks on corporation tax, these entities must pay 90% of profits from their rental operations out in the form of dividends. Many of these property investment trusts even regularly exceed this threshold.
There are other reasons why REITs can be a terrific source of long-term income, too. These include:
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- Robust cash flows that can be paid straight out in dividends.
- Predictable rental income thanks to multi-year tenant contracts.
- Inflation-linked leases that protect against rising costs.
- The potential for dividend growth as rents rise and new properties are acquired.
Safe as houses?
With a focus on the highly stable residential lettings market, The PRS REIT (LSE:PRSR) can offer even greater income reliability to investors. In the last financial year (to June 2024), rent collection was 99%, while occupancy was a healthy 96%.
PRS REIT might be dependable but it’s by no means boring. Ripping rent growth across its portfolio of roughly 5,500 homes is sending earnings through the roof.
Revenue and adjusted profit were up 17% and 90% respectively in fiscal 2024. Results have been especially impressive because of the REIT’s focus on family homes, a segment where market shortages are especially acute.
A stream of industry data since then implies that trading conditions remain ultra supportive for the company. Office for National Statistics (ONS) data on Wednesday (19 February) showed UK private rents kept rising at a robust pace, up 8.7% in the 12 months to January.
Government plans to supercharge housebuilding between now and 2029 could impact future growth rates. But I believe rents may still rise sharply up to then (and potentially over the long term) as Britain’s population rapidly increases.
Investors can currently grab a market-beating 3.8% dividend yield with PRS REIT shares.
Big cheese
Profits at Tritax Big Box REIT (LSE:BBOX) are (in theory) more susceptible to economic downturns. But it’s another top investment trust that’s worth considering, in my opinion.
I actually currently hold this REIT in my own portfolio.
Tritax owns and lets out large warehouse and logistics assets across the UK. It therefore has considerable long-term growth potential as the e-commerce segment steadily grows.
But this is not all. Changes to supply chain management has boosted sector demand following the pandemic, and could continue if new trade tariffs come in that increase onshoring.
Tritax also has an opportunity to profit from rapid expansion in the data centre sector. Last month it acquired a 74-acre site near Heathrow Airport which it considers a “prime EMEA data centre location“.
As with the residential property segment, Tritax’s market is also grossly undersupplied and therefore experiencing significant rental growth. The business enjoyed annualised rental growth of 5.1% on reviewed leases during the six months to June, latest financials showed.
Tritax Big Box shares currently boast a healthy 5.6% dividend yield for 2025. I expect the company to remain a great dividend stock over the long term.
