One income stock I will be adding to my holdings imminently is Urban Logistics REIT (LSE:SHED). Here’s why I’m bullish on the shares.
Real estate investment trust
As a quick reminder, a real estate investment trust (REIT) is a business designed to yield income from property. As a rule of thumb, it must return 90% of profits to shareholders in the form of dividends. This is why I already own a few REITs as part of my holdings, with the primary aim of boosting my passive income stream.
Urban specialises in industrial and logistics-style properties to help with ‘last mile’ delivery. It focuses on smaller, single-let industrial properties in key locations throughout the country.
At present, Urban shares are trading for 134p. At this time last year, the stock was trading for 163p. This is a 17% decline over a 12-month period. This share price drop does not concern me. In fact, I view it as an opportunity to buy cheap shares in a stock I’ve had my eye on for some time.
An income stock with challenges to be wary of
Despite my decision to buy Urban shares, I must note bearish aspects which could hamper the shares. Firstly, I believe the share price has been pushed down by economic volatility caused by soaring inflation and rising costs. This is not good news for Urban as many businesses are struggling. This could see them struggle to pay rent to firms like Urban for the use of their properties.
Next, for any income stock, it is worth remembering that dividends are never guaranteed. They can be cancelled at the discretion of the business to conserve cash in times of volatility.
Finally, Urban has a record of acquisitions to grow its portfolio of properties. Acquisitions are great, but they have the ability to go wrong. One common issue is overpaying for a property in Urban’s case. This could have a detrimental impact on returns.
Why I like Urban shares
To start with, I like Urban’s business model and the sector it is currently targeting. E-commerce has exploded in recent years, and there is still a shortage of quality warehousing space for businesses to utilise. Urban specifically targets businesses looking for ‘last mile’ hubs. This should help boost performance and returns for some time to come.
Moving on to Urban’s level of return, the shares current dividend yield stands at an impressive 6%. This is higher than the FTSE 100 and FTSE 250 average of 3%-4% and 1.9% respectively.
Next, due to Urban’s recent share price drop, the shares look dirt-cheap on a price-to-earnings ratio of just over three.
Finally, Urban has a good track record of performance. I do understand that past performance is not a guarantee of the future. However, looking back, I can see it has grown revenue for the past four years consecutively. It also continues to expand its portfolio of properties for growth purposes.
In conclusion, I believe Urban will serve me well as a good income stock. I do expect some shorter term headwinds due to the current volatility in the economy. Despite this, I buy and hold for the long term, so I am happy to buy the shares and hold on to them for long-term returns.