A real estate investment trust (REIT) is a great way to boost my passive income through dividend payments. I own a number of these types of stocks already as part of my holdings. Another I like the look of is Target Healthcare REIT (LSE:THRL). Here’s why.
Healthcare provisions
As a quick introduction, Target is a REIT that purchases and lets out care homes and other healthcare-related properties. It isn’t the most exciting sector, but it could be lucrative, in my opinion.
As a quick reminder, a REIT is a business designed to make money from income-yielding property. As a rule, 90% of profits must be distributed to shareholders in the form of dividends.
So what’s happening with Target shares currently? Well, as I write, they’re trading for 114p. At this time last year, the stock was trading for 124p, which is an 8% decline over a 12-month period. This does not concern me, as many shares have pulled back due to macroeconomic and geopolitical factors in recent months. In fact, the shares falling could make them a bargain currently.
Risks to note
As with any dividend stock I am looking to add to my holdings, I must remember that dividends are never guaranteed. These can be cancelled at the discretion of the business at any time. This can be for a multitude of reasons such as poor performance or even an extreme event like a recession or pandemic like in 2020.
Target, like many other REITs, could come under pressure from the current cost-of-living crisis which may affect rent collection. If it cannot collect its rent, it cannot perform and return money to shareholders in the form of dividends. This is a real risk towards boosting my passive income through the shares. I will keep an eye on developments here.
A REIT I would buy
I believe Target has defensive capabilities. This is because healthcare and provisions linked to healthcare are essential for all people. This could see its ability to perform increase in the years ahead. Furthermore, the ageing population in the UK could also boost Target’s performance and returns with its interests in care homes.
So to the fundamentals then. I like the look of Target’s performance track record. Now I do understand that past performance is not a guarantee of the future, but performance underpins returns. Looking back, it has grown revenue and profit for the past four fiscal years.
Next, Target has an attractive dividend yield of just under 6% at current levels. This is almost three times the current FTSE 250 average of just under 2%.
Finally, Target shares look good value for money at current levels on a price-to-earnings ratio of just 12. There is a general consensus that a ratio of lower than 15 represents value for money when buying shares.
I like Target Healthcare REIT and it is one stock I would buy for my holdings to add to my collection of other REITS. I believe it will continue to grow in line with the demographic changes here in the UK, and provide consistent and stable returns.