I have been on a mission recently to find the best shares to buy for passive income that I believe can provide me consistent returns. I believe Residential Secure Income (LSE:RESI) could be a great option. Should I buy the shares for my holdings?
Residential properties
As a quick introduction, Residential is a real estate investment trust (REIT). It invests in quality, affordable, residential housing across the country. It currently has a portfolio of over £300m and has a 20-year track record of investments and returns.
It is worth noting that REITs are designed to reward shareholders through dividend payments. In fact, they must return 90% of profits to shareholders. I already own a number of REITs as part of my portfolio.
So what’s happening with Residential shares currently? Well, as I write, the shares are trading for 104p, which is the same price as at this time last year. The shares have pulled back 3% from 108p since the turn of the year to current levels, however.
The best shares to buy have risks too
The risk of any divided stock is that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time. This could be for a number of reasons, such as poor performance, a recession, or an extreme event like a pandemic.
The current cost-of-living crisis poses a threat to Residential’s performance, in my opinion. It rents homes out to people and with the current macroeconomic issues, soaring costs have caused many people to tighten their belts. Some are struggling to pay for essentials such as rent, energy bills, and food. If collecting rent becomes tougher, performance and returns could be affected.
The bull case and what I’m doing now
So to the positives. I believe Residential has defensive characteristics. Firstly, a home is essential for any person. Secondly, here in the UK, the demand for homes is massively outstripping supply. In fact, leased residential buildings is one of the most defensive real estate sectors available currently.
So to the returns then. Residential shares offer a dividend yield of just over 5% currently. This is higher than the FTSE 100 average, which is 3%-4%. It also pays a quarterly dividend and aims to offer an 8% annual return to its investors.
Next, Residential shares look good value for money currently too on a price-to-earnings ratio of just over 11. The general consensus is that a ratio below 15 represents value for money.
Finally, Residential’s performance track record is positive. Now, I am aware that past performance is not a guarantee of the future, however. But, performance and returns are linked as the former underpins the latter. Looking back, I can see Residential has increased revenue and profit for the past four years in a row.
Overall I believe Residential Secure Income is one of the best shares to buy now for consistent returns. The shares look attractively priced, and the fact it operates in a defensive sector is a bonus. I will be adding the shares to my holdings imminently.