There are more than 55 real estate investment trusts (or REITs) listed on the London Stock Exchange today.
This gives a UK share investor like me a wide selection of these income-boosting property stocks to choose from.
Passive income boosters
I think investing in ‘bricks and mortar’ stocks is a particularly good idea in this period of huge uncertainty. Broadly speaking, rental incomes tend to be stable at all points of the economic cycle. And because the broader property market appreciates in value over time, they’re a great choice for long-term investors, too.
REITs more specifically are set up to be an easy and profitable alternative to directly investing in property. Their status means they don’t have to pay corporation tax on profits and capital gains on their rental businesses. In exchange they are required to pay 90% of their annual earnings out by way of dividends.
Two REITs I already own
I’ve bought care home operator Target Healthcare REIT to boost the income I receive from my own portfolio.
Like any property stock, I don’t have control over what assets my capital is used to buy. And this creates additional risk. But I’m confident that soaring demand for specialist elderly living over the next decade will deliver terrific returns and healthy long-term passive income.
Tritax Big Box REIT is another great real estate stock I own. I bought the warehouse and distribution centre specialist to capitalise on changing shopper habits. The growth of e-commerce means the need for these sorts of properties is soaring.
This is another advantage of investing in property stocks like REITs. I have the opportunity to invest in areas of the property market I wouldn’t be able to touch otherwise.
Okay, tough economic conditions could strike demand for so-called big box properties in the near term. But over the next decade this is a market tipped for fast growth.
I’m confident both of these high dividend stocks will make me a healthy passive income. Target and Tritax’s dividend yields currently sit at 7.7% and 5.2% respectively.
… and one more on my shopping list
Residential Secure Income REIT (LSE: RESI) is another specialist property stock I’m considering buying.
This residential property share specialises in affordable shared ownership and retirement rental properties. This gives it access to two white-hot growth markets.
There are huge shortages of affordable homes in the UK. Weak housebuilding rates mean that this supply and demand imbalance looks set to last, too. So the prices Residential Secure Income asks for its properties can be expected to keep climbing.
I also like the REIT’s exposure to the rapidly expanding retirement property sector. This could deliver big returns as the general population gets older.
I think it’s a top buy despite the threat rising interest rates pose to homes sales in the immediate future. And especially as it offers great all-round value now.
The business currently offers a bulky 5.5% dividend yield. It also trades on a forward price-to-earnings (P/E) ratio of just 17.4 times, well below its historical average north of 20 times.