For investors seeking a steady stream of passive income, dividend stocks are usually the go-to option. Yet many once-revered income investments have disappointed shareholders in recent years.
With the pandemic disrupting almost every industry, dividends have been cut, or even cancelled, as companies aim to build up cash reserves. And now that inflation is wreaking havoc, this trend continues to plague income portfolios.
So I can’t help but get excited when looking at two businesses that have not only maintained shareholder payouts but also continue to grow them in all this chaos. Let’s take a closer look at what seems to be money-making machines.
Putting other dividend stocks to shame
While the e-commerce industry is suffering from the consumer spending slowdown, outlay on ancillary services like warehousing remains strong. Or at least, that’s the impression I’m getting when looking at LondonMetric Property (LSE:LMP).
The company owns and leases urban logistics centres to online retailers, including industry titans such as Amazon. Its property portfolio spans 17 million square feet with a 99% occupancy rate and an average lease agreement lasting 12 years.
Consequently, the group’s £143m annual rental income has proven exceptionally resilient to external forces. And this has resulted in dividends expanding every year since 2018, reaching a yield of 5.4% today.
Needless to say, seeing payout growth paired with reliability is an encouraging sign. But the dividend stock is far from risk-free. Acquiring and maintaining industrial real estate isn’t cheap. And it’s led to a pretty unimpressive £1bn pile of debt on its balance sheet.
With interest rates on the rise, the pressure on margins is mounting. While management has hedged and fixed the vast majority of its loans, further rate hikes could impact future shareholder payments. That’s probably why the share price has tumbled by nearly 30% in the last 12 months.
But with the valuation trading at a P/E ratio of just 2.2, I feel investors may have oversold this business, potentially creating a buying opportunity. And it’s one that I personally would have already acted upon if it weren’t for another similar dividend stock already in my portfolio.
Another real estate opportunity?
Continuing the warehousing theme, another promising income play that’s already made its way into my portfolio is Warehouse REIT (LSE:WHR).
Much like LondonMetric Property, the group acquires and leases warehousing space, predominantly to e-commerce enterprises. The key difference between the two is the target audience. Warehouse REIT focuses on serving small- and medium-sized businesses carving out an often-underserved niche.
Smaller-scale clients do introduce additional risk with a shorter average lease term of 5.6 years. And like other warehouse operators, the debt balance does represent a significant chunk of its capital structure.
Yet management’s strategy of acquiring run-down but well-positioned warehouses for renovation seems to be paying off. The group has successfully raised shareholder dividends every year since going public in 2017. And despite being a young enterprise, it’s already become a member of the FTSE 250 index.
With Warehouse REIT shares offering an impressive 5.7% yield today, the income prospects of this dividend stock seem to outweigh the risks. At least, that’s what I think. And that’s why I might decide to increase my existing stake once I have more capital to invest.