There will always be a risk that the companies in question could reduce their payouts to investors. If profits fall, or interest costs rise significantly, these businesses may have to hold back more cash to cover costs. Shareholders may be the first to feel the pain in any adverse scenario. 

Still, I believe some companies have more dependable dividends and others. Here are two REITs that fit my model. 

Passive income champions

Income from property can be more predictable than from other assets. This is especially true when landlords and tenants have agreed on a long-term contract. 

Secure Income REIT (LSE: SIR) has developed a business around this principle. The company has acquired a portfolio of properties that have long-term contracts. These tend to be unique and specialist assets, such as theme parks, supermarkets and care homes. 

These unique assets are let to highly liquid and financially stable tenants. Contracts are also usually tied to inflation. This combination of factors suggests the stock has a much more predictable and stable income outlook than other investments.

Unfortunately, even these qualities do not exempt the company from the powerful economic cycle. A sudden downturn in property prices, increasing interest rates or rise in corporate defaults, could all impact the value of its property portfolio and tenant income. 

Despite these challenges, I would acquire Secure for my passive income portfolio for its 3.5% dividend yield. 

Rental property 

The PRS REIT (LSE: PRSR) is building a portfolio of private rental properties across the UK. The company’s ambition is to develop more than 5,000 properties and generate a revolution in the buy-to-let market. 

PRS is building high-quality properties in large estates, which it offers on multi-year contracts. These assets are particularly appealing for renters and the company. New buildings have lower maintenance costs and are more appealing for renters. The multi-year contracts guarantee an annual income and attractive return on investment. 

The most considerable risk to this business model is the threat of regulation. Additional regulations, such as a rent cap or additional legal requirements for landlords, could increase costs and reduce returns. The group may have to sell its properties to other investors in the worst-case scenario if returns fall significantly. 

Still, thanks to its focus on the private rental market, rent collection has remained strong throughout the pandemic. This has supported the group’s dividend yield, which stands at 3.8%. 

With more developments planned, it looks as if the company has the potential to increase its dividend steadily over the next few years. On that basis, I would acquire the stock for my portfolio. 

These are the businesses that I would buy for my portfolio to navigate the current inflationary environment. 

UK shares to buy today

The first company on my list is Diageo (LSE: DGE). With its portfolio of billion-dollar brands and 20%+ operating profit margins, it looks as if the corporation has the pricing power and margin headroom required to pull through the current inflationary environment. 

However, the one thing that does worry me is the group’s debt. It has a fair bit of borrowing, the cost of which could increase if central banks hike interest rates to deal with rising inflation. This could have an impact on profit margins and overall cash flow. 

Still, considering its competitive advantages, I think this is one of the best UK shares to buy as inflation surges. The firm is also looking to increase its footprint through acquisitions and organic growth over the next couple of years. 

Property income 

Secure Income Reit (LSE: SIR) was founded to generate long term, inflation protected income from real estate investments. This suggests it is one of the best companies on the market to own in an inflationary environment. The corporation invests in high-quality real estate assets, let to clients on long-term contracts, which have inflation uplifts built-in. 

Few other UK shares offer this kind of inflation protection on the market. Property is also an excellent asset to own when prices rise as inflation can lift the value of real estate as well. As such, it looks to me as if Secured Income is doubly protected from inflationary pressures. Its assets and cash flows may both increase in line with price growth. 

Once again, higher interest rates could become an issue for the group if they increase the cost of its debt. This may be the biggest challenge the company has to deal with in the years ahead. 

Precious metals

Fresnillo (LSE: FRES) is the world’s largest producer of silver from ore and Mexico’s second-largest gold miner. This suggests the company has a certain level of information protection because the value of precious metals tends to increase in line with inflation in the long run. 

Unlike owning precious metals directly, which can incur management costs, Fresnillo currently supports a dividend yield of 2.3%. If the price of gold and silver rises in line with inflation, the firm’s profits should follow suit. This should enable the business to increase its dividend investors. 

That said, inflation may put upward pressure on the company’s wage bill. Higher costs could compress profit margins, leading to some tough choices for the management. This is probably the biggest challenge the group will face in the years ahead. 

With that in mind, here are three income stocks that look attractive in the current environment for long-term investors.

Secure income stocks

Secure Income REIT (LSE: SIR) was designed with the single goal of providing a steady income stream for investors in all environments. The group’s portfolio comprises “critical operating assets let to strong businesses in defensive sectors with high barriers to entry.“

The 161 operating assets that make up the overall portfolio are let on leases with a weighted average lease term of 21 years, with no brakes. What’s more, the company is well funded. At the end of 2019, it had uncommitted cash on the balance sheet of £234m, with a net loan-to-value ratio of 31.9%.

All of the above suggests the company is well-positioned to weather the current uncertainty.

Some tenants might withhold income in the near term, which would have an impact on cash flows. But any outstanding dues should be settled over the next 12-24 months, especially considering the nature of Secure’s blue-chip portfolio.

Right now, the stock supports a dividend yield of 5.6%. It’s also trading at a price-to-book value of just 0.7. That’s why this business makes it onto my list of the top three income stocks to buy in April.

Healthcare properties

Healthcare-focused real estate investment trust Target Healthcare REIT (LSE: THRL) also looks attractive. After recent declines, the stock is trading with a dividend yield of 6.6%. Target owns and operates a portfolio of purpose-built care homes. At the end of December, the business owned and operated 71 assets let to 28 tenants with a total value of £590m.

The demand for care facilities in the UK is only growing. The coronavirus pandemic is unlikely to change this trend. That makes Target stand out as one of the market’s top income stocks.

The company is also well-financed. Its net loan-to-asset ratio was just 20% at the end of 2019. This suggests the group has plenty of firepower to both maintain operations for an extended period if income drops substantially.

The low level of borrowing also indicates the business has the financial flexibility to pick up assets on the cheap from other providers that might be struggling.

H&T Group

The final income stock I’d consider buying in April is pawnbroker H&T Group (LSE: HAT). Ethical considerations aside, businesses such as H&T tend to do well in times of economic hardship. As it looks like we are heading towards one of the worst economic contractions on record, H&T could be about to see a surge in business.

However, in the near term, the outlook for the business is bleak. H&T stores across the country are currently closed, in compliance with government guidelines. This will hit earnings in 2020. It’s likely management will also cut the dividend as a result.

Nevertheless, when the stores re-open, there could be a boom in demand for H&T’s services. This implies management will be able to reinstate shareholder payouts. Reinstating the dividend at the current level would give a yield of 5.3%.

Indeed, the great thing about owning property stocks is that you do not have to worry about managing any properties. All investors have to do is sit back, relax, and watch the money roll in as the assets are managed on their behalf. 

Margin of safety 

Real estate investment trust Hammerson (LSE: HMSO) is a great example.

This owner-operator of retail destinations throughout Europe has been under pressure recently due to its extensive portfolio of retail assets in a weak retail environment.

Nevertheless, management has been taking action to reduce the company’s exposure to the high street. It has divested up to £500m worth of assets so far this year, using the proceeds to bolster its balance sheet.

While the company’s exposure to retail property is concerning, Hammerson’s current valuation provides a cushion against further pain. 

The stock is trading at a price-to-book ratio of just 0.5, which suggests a wide margin of safety that could lead to improving capital returns in the long run. Also, the trust supports a dividend yield of 8% at the time of writing. 

Rising income

New River Retail (LSE: NRR) is another real estate investment trust that has been punished for its exposure to retail property. The stock has lost around 10% of its value this year, excluding dividends to investors. 

While the market is worried about New River’s retail exposure, the company’s underlying fundamentals still show strength. At the end of its fiscal first half, the group reported a 3% increase in underlying funds from operations. 

Unfortunately, the company was hit by a 7% decline in property values, but total net property income increased by around £4m year-on-year. 

The increase in property income and funds from operations helped improve the company’s interest and dividend cover ratios. So, while the value of New River’s properties might have slipped this year, the firm’s financial position has improved. 

The stock appears to offer value as it is currently trading at a price to book value of 0.8, and it provides a dividend yield of 10.8%. These metrics suggest investors could be well rewarded as the property market turns.

Trophy assets

Finally, if you are looking for high-quality property stocks, I highly recommend taking a closer look at the Secure Income REIT (LSE: SIR). 

Secure Income will only invest in highly defensive assets that have ultra-long rental agreements, such as hospitals and theme parks. Indeed, the portfolio of properties includes the Alton Towers theme park and Thorpe Park. 

With these trophy assets on the balance sheet, the stock isn’t cheap, but if you are looking for a guaranteed income stream from some of the most unique property assets in the country, it could be worth paying a premium to invest in Secure. 

The stock trades at a price-to-book ratio of one and offers a dividend yield of 4.1% at the time of writing. The value of its property portfolio has grown at a compound annual rate of 12% over the past six years, which suggests that this stock offers the potential for significant capital gains, as well as income over the long term. 

A single aim 

Secure Income REIT (LSE: SIR) was founded with the sole objective of generating a steady double-digit annual return for investors from property. 

The focus of the company is finding properties with tenants on ultra-long-term leases. The weighted average unexpired lease term in its portfolio is 22 years, with no break clauses. What’s more, over half of the leases in place with tenants have fixed annual rent uplifts of at least 2.8% per annum, with the rest linked to inflation.

Management has set out to create one of the best property businesses around and they are said to benefit more than most because they own more than 16% of the company. In other words, if they fail, they stand to lose a lot of money.

Rising yield 

Management skin in the game, coupled with Secure Income’s robust property portfolio, are the primary reasons why I believe this real estate investment trust is a great alternative to buy-to-let property. 

At the time of writing, the shares are trading just under net asset value per share of 382p, and support a dividend yield of 3%. This distribution is slightly lower than I’d like, but over the next two years, analysts think the payout will increase by 60%, giving a prospective dividend yield of 4.4%. And the prospects for dividend growth in the years after is also bright, with property lease income linked to inflation.

Defensive income 

Along with Secure Income, I’m also attracted to the defensive qualities of Target Healthcare (LSE: THRL). 

Much like Secure Income, Target is focused on inking long-term lease deals that guarantee income for extended periods. The trust’s speciality is purpose-built UK care homes. As there seems to be a constant stream of care home providers going out of business, this sector doesn’t have the best reputation for investor returns. However, the lack of social care facilities is one of the most significant problems facing the UK right now, and the government is currently working on many solutions to the problem. Whichever solution policymakers decide on, I reckon it’s highly likely the industry will see a boost in funding in the near term, which should improve its overall financial health.

Target only invests in modern care home facilities with multi-decade leases which, in my opinion, makes the company one of the most attractive investments in a troubled sector. With a dividend yield of 6% at the time of writing, it’s also highly attractive from an income perspective. 

A net asset value of 106p at 30 September puts the 108p shares on a slight premium although, as my colleague Alan Oscroft has pointed out, this premium suggests investors believe that the market-beating dividend yield is here to stay.

Looking further ahead, though, the company could generate high returns due to government policy, as well as the nature of the UK housing market. Alongside an income stock that reported positive news on Friday, now could be the perfect time to buy Taylor Wimpey for the long run.

Impressive outlook

The company reporting on Friday was real estate investment trust Secure Income REIT (LSE: SIR). It released interim results which highlighted its resilient dividend potential. Its like-for-like portfolio valuation increased by 2.8% over the six-month period, while it was able to reduce its net loan to value to 44.4%. This is down from 29.6% at the end of 2017 and may provide the company with a more robust balance sheet over the medium term.

During the period, the company was able to complete the £436m acquisition of two off-market properties. They provide an initial property yield of 5.2% secured on assets in defensive sectors let to good covenants with inflation or fixed uplifts. As such, they may catalyse the company’s financial performance.

With Secure Income REIT having a dividend yield of 3.9%, it seems to offer an impressive income return. The stock also appears to have an attractive valuation and could therefore deliver high total returns in a stable fashion over the long run.

Growth potential

The outlook for the Taylor Wimpey share price over the long run may also be impressive. The company has been able to build a significant economic moat in recent years. It now has a large landbank as well as a substantial net cash position. Both of these factors could mean that the company enjoys barriers to entry, as well as the capacity to withstand slower-growth periods for the UK housing market.

Although in the short run there could be pressure on house prices, demand for new-build homes is set to remain high. First-time buyers require only a 5% deposit as a result of the Help to Buy scheme, while low interest rates make housing even more affordable.

Due to this, the financial outlook for Taylor Wimpey seems to be upbeat. The company is forecast to post a rise in earnings of 4% in each of the next two financial years. With a price-to-earnings (P/E) ratio of 9 and a dividend yield that is expected to reach over 10% next year, the total return potential of the stock seems to be impressive. It could prove to be one of the best buys in the FTSE 100 at the present time.

Indeed, I believe one of the most attractive qualities about Lok is its dividend growth record. Over the past six years, the payout to investors has risen by 100% or around 15% per annum and City analysts have pencilled in annual double-digit growth for the next two years. 

This rate makes the company, in my opinion, a fantastic income play. And I believe dividend growth could surpass City forecasts in the years ahead as Lok ramps up its store expansion policy.

Investing in growth

Today it reported the acquisition of two further freehold sites to add to its development pipeline, one in Cardiff and one located in Cheshunt, Hertfordshire. Both of the sites are located in what the company describes as “busy” locations.

With the addition of these stores, Lok has a development pipeline of nine landmark stores. According to management, this “pipeline adds 39% to owned freehold trading space and 54% to the managed store portfolio, delivering a total of 32% increase to overall trading space.”

Looking at this pipeline for growth, it is no surprise that the analysts expect the company’s earnings per share to increase by around 30% over the next two years.

Another attractive quality of the business is the fact that its CEO, Andrew Jacobs owns almost 19% of the company. I am big fans of companies where management holds a significant stake because it means they are highly incentivised to produce the best returns for investors, and not put the enterprise in a position that may jeopardise their wealth and reputation.

In this case, it seems Jacobs is also as much of a fan of dividends as I am, which is great news for income investors. In the announcement revealing today’s deals, he declared “we are producing predictable growth in dividends for investors from…an increasing asset base and strong balance sheet.”

This commitment to dividends helps Lok stand out as one of the market’s top dividend stocks. I also believe it more than makes up for the below-average dividend yield of 2.6% offered by the shares. 

Secure income 

If Lok isn’t your cup of tea, then perhaps Secure Income REIT (LSE: SIR) might be a better buy.

Secure Income was founded by property entrepreneur Nick Leslau, who remains one of the company’s largest shareholders. In total, management owns 16.4% of the business, a stake worth £140m at the end of December 2017. 

The real estate investment trust was founded with the goal of providing a secure, steady income for investors backed by property. And looking at the company’s current property portfolio, there’s no reason to believe that it cannot accomplish this goal. The group has protected itself from the risk of vacancy by sticking only to long-term lets with strong covenants. The weighted average unexpired lease term is 22.2 years, and there are no break options, which should enable it to sail through any property market storms.

At the same time, 58% of the company’s contracts with lessees have fixed annual uplifts in rent of at least 2.8% per annum. The remainder of the portfolio is on RPI-linked agreements with annual and five-yearly rental revisions.

Put simply, Secure Income has constructed one of the most defensive property portfolios around, and you can take advantage of this today.

Living up to expectations 

Shares in Secure Income also look to be much more appropriately valued than those of Lok. The dividend yield is a respectable 4%, and management is always on the lookout for new assets to buy, which will increase the group’s net asset value. 

Last year it registered net asset value growth of 14.5% which, together with dividends paid, equated to a total shareholder return of 19%. Secure Income certainly looks to be living up to its name.

With UK interest rates currently well below the inflation rate, cash is a big loser. Thankfully though, there are some investments that could actually benefit from higher inflation, and today I’m going to take a closer look at two of them.

Property

Property investments are a natural hedge against inflation, since landlords have the ability to periodically review rents to reflect unexpected bouts of inflation, among other market factors. And as property represents a ‘real’ asset, property values have held up well against inflation over the very long term.

Landlords can also get added protection through the linking of rent increases to the rate of RPI-inflation. Secure Income REIT (LSE: SIR) is one such commercial property landlord which has taken advantage of these RPI-linked leases.

The REIT has much greater income predictability than most property portfolios, given that 86% of its rental income comes from leases which benefit RPI protection, while a further 13% have fixed uplifts.

Vacancy risk

It has also protected itself from the risk of vacancy by sticking only to long-term lets with strong covenants. With a weighted average unexpired lease term of 22.2 years, and no break options, it has one of the longest average unexpired lease lengths in the REIT sector. This means its rental income should hold up well even during if economic conditions turn sour.

One downside, however, is its high level of tenant concentration, which could increase the risks resulting from a potential default by a single large tenant.

Based on its Friday’s share price of 373p, the REIT currently offers a yield of 3.7% and trades at a 1% premium to its NAV.

Renewable energy

Infrastructure investments are another way to beat inflation, and in this sector, I’m keen on the Bluefield Solar Income Fund (LSE: BSIF). It is one of the biggest solar investment trusts in the UK, with a total net asset value of roughly £400m.

It has a great deal of protection against rising inflation, since it earns government subsidies, via Feed-in tariff and CfD subsidies, that are directly linked to the rate of inflation. In fact, management is so confident that rising inflation would benefit its earnings potential that it has in place a dividend policy which is linked to the rate of RPI inflation.

Reflecting the accelerating pace of inflation, its dividend growth has also accelerated. For its 2017 financial year, the company paid a total dividend of 7.43p per share, reflecting the RPI increase of 3.5% in July 2017.

The company also has some protection against rising interest rates since a majority of its debt is secured on fixed interest rate terms. This would mean that should the Bank of England attempt to combat higher inflation by raising interest rates, its average cost of debt would not rise by much — limiting the impact of a potential drag on its earnings.

Shares in the fund currently offer investors a yield of 6.6%.

As well as this guaranteed income stream, the company has increased its net asset value by over 100% since its IPO in June 2014 by reinvesting earnings and borrowing additional funds to invest. 

Unfortunately, the one downside of this strategy is that Secure Income’s net loan-to-value ratio was 51% at the end of June. Although considering the stability of the group’s earnings stream, as well as the fact that interest repayments are covered twice by rental income, I do not believe that investors should be concerned about this high level of leverage.

Slow and steady wins the race

Secure Income has a record of generating steady returns for investors, and it looks as if this is set to continue with the company’s tenants in place for the next two decades. At the time of writing the shares support a dividend yield of 4.1% and the net asset value per share at the end of June was 355p, so the stock is trading at a modest price of just one times book value.

Overall, if you are looking to invest your first £1,000 in a reliable, defensive, income-paying stock, Secure Income should not be overlooked.

Undervalued property 

Another real estate investment trust that could be a great starter income investment for your portfolio is Green REIT (LSE: GRN).

Like Secure Income, this Ireland-based investment trust has a record of generating value for shareholders. Over the past four years, book value per share has increased by around 50%, and since its IPO at the beginning of 2013, the stock has returned 37% for investors, excluding dividends. At the time of writing the shares support a dividend yield of 3.9%.

According to Green REIT’s figures for the six months to the end of December, which were published this morning, the company produced a total return of 13.6% for investors, following a return of 13.5% for 2016. Unlike Secure Income, the firm has been able to accomplish this growth with a relatively low level of debt. Its loan-to-value ratio was just 22.1% at the end of December with an all-in cost of debt of 1.8%. 

At the end of the period, Green REIT’s net asset value per share was €1.68, indicating that at the time of writing the shares are trading at a 7.7% discount to the value of the underlying property. With this being the case, this stock could be a better buy for income investors seeking to gain exposure to a secure income stream from property at a discounted valuation. The one downside is that this REIT’s dividend yield is below 4%, although the unleveraged balance sheet (leaving plenty of room for further asset growth) and discounted valuation more than make up for this lack of income in my opinion.

But for long-term investors, there could also a buying opportunity on offer. Not all REITs are reporting falling valuations, with many still continuing to report positive valuations gains and rising rents.

Defensive portfolio

Secure Income REIT (LSE: SIR) is one such sector operator. Over the first six months of the year, the trust’s net asset value (NAV) per share gained 9.9% to 355.5p, as its portfolio valuation rose by 4.8% to £1.72bn since 31 December 2016. Rents increased 2.7% over six months to 30 June, while the vacancy rate remained at 0%.

These results show that although there are parts of the UK property market beginning to slow, there’s growing divergence between different property sectors. Unlike the bellwether REITs, which are mainly invested in retail and office space, Secure Income instead focuses on healthcare, leisure and hotel assets.

And as the group has a weighted average unexpired lease term of 22.7 years with no break options, Secure Income’s portfolio is also more defensive than a typical REIT. As such, I expect its portfolio to hold up well amid uncertainty in the broader market.

Looking ahead, City analysts expect dividends this year will rise to 13.9p per share, giving investors a prospective yield of 3.9%. And although the REIT currently trades at a 1% premium to its NAV, I believe this reflects the high level of investor demand for safe income-generating assets.

Irish property

Another REIT showing resilient growth is Irish property investment company Green REIT (LSE: GRN). The group owns and manages a €1.38bn commercial property portfolio centred primarily around Dublin.

Tenant demand and occupancy rates for Dublin office space have held up well in comparison to London, thanks to favourable fundamentals. The Irish market is set to benefit from a rise in take-up of new office space over the next few years, as financial institutions look to set up offices in other EU member states, post Brexit.

For the year to 30 June, Green REIT’s NAV per share rose 9% to €1.66, following revaluation gains of €97m over the past year. Prime headline rents in Dublin city centre have remained static in the last 6 months, but its vacancy rate fell slightly to 1.5%. What’s more, its balance sheet remains strong, with a loan-to-value ratio of 20.2%.

Based on today’s stock price, the proposed 5 cent per share dividend payout works out as an uninspiring yield of around 3.3%. However, valuations are more tempting, with Green REIT now trading at 9% discount to its NAV.