As a dividend investor I’ve made it a mission to boost my holdings of real estate investment trusts (or REITs). I think they’re a great way for me to give my long-term passive income a shot in the arm.
Benefits of these kinds of shares include:
- They pay 90% of annual profits out in the form of dividends.
- REITs are popular with international investors, a quality that gives them more cash to put to work.
- They offer me a wide range of property sectors to invest in, thus reducing my risk through diversification.
- Property stocks like these can often raise rents in line with inflation, eliminating the impact of rising prices on my wealth.
Here are three I’m considering spending my cash on in November.
Target huge returns
I already own Target Healthcare REIT in my Stocks and Shares ISA. Following heavy share price weakness I’m considering building on my existing position.
The business — which focuses on the care home sector — trades on a forward price-to-earnings growth (PEG) ratio of 0.4. This is under the threshold of 1 that indicates a stock is undervalued.
Target’s dividend yield meanwhile stands at an enormous 8.4%.
Growing nursing staff shortages pose a threat to the company’s profits. But I believe this is offset by the potential benefits brought by Britain’s rapidly ageing population.
Government forecasts suggest one-in-seven Brits will be aged over 75 years by 2040. It’s my expectation that demand for care homes will rise rapidly over the next few decades.
Home run
Britain has a considerable shortage of rental homes. A blend of falling buy-to-let investors, weak housebuilding activity, and population growth means that the shortfall looks set to worsen too.
In this situation residential rents look set to keep growing. I’d buy shares in KCR Residential REIT to capitalise on this theme. That’s even though rising interest rates are pushing its debt servicing costs higher.
This particular property stock is focussed on the more affluent regions of London and the South of England. I also like its decision to build apartments for people aged 55 and over. This, like Target, gives it an increasingly large clientele to aim at.
Another dirt-cheap REIT
The retail sector faces significant near-term uncertainty as consumer spending sinks. This in turn poses threats to commercial property owners like Ediston Property Investment Company.
But it’s my opinion that this threat is baked into the company’s low share price. Today the retail park owner trades on a forward PEG of 0.3 times.
I’m also a fan of the company’s 8.3% dividend yield.
The retail park sector is tipped for solid growth in the post-pandemic age. Easy parking, spacious shop units, and a larger range of goods make them ideal places for the modern customer. The growth of ‘click and collect’ also gives them a chance to indirectly cash in on the e-commerce boom.