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.

The stock is Warehouse REIT (LSE:WHR), and it only joined the index in September before tumbling by 25%! Let’s explore what happened and why I think a fantastic buying opportunity has emerged.

A new bargain in the FTSE 250 index

Warehouse REIT is quite a young enterprise, with its IPO dating back to 2017. As the name suggests, the group is a warehouse operator that focuses on serving primarily the e-commerce fulfilment industry.

The business model is simple:

1. Buy a well-positioned dilapidated property at a low price
2. Renovate and lease the space to businesses
3. Sell the property for a profit when no longer needed
4. Repeat

The group has acquired 8.5 million sq ft of premium leasable space, generating £44m in annualised contracted rent.

The drop in consumer spending has undoubtedly impacted the online retail space. Yet despite this, the firm’s occupancy rate remains strong at 93.7%, with an average lease term of 5.6 years. Half a decade is relatively short compared to some of its peers that boast 10+ years of lease agreements. However, as Warehouse REIT’s client portfolio consists mainly of small- and medium-sized enterprises, this isn’t too alarming.

With long-term demand for e-commerce unlikely to disappear, the need for the group’s logistical solutions isn’t going anywhere. At least, that’s what I think. And with a five-year consecutive track record of raising dividends, this FTSE 250 stock looks like an excellent addition to my income portfolio. Even more so now that its market capitalisation is lower than its net asset value!

Understanding the risk

Following the chaos surrounding the announcement of the new UK government’s mini-budget, Warehouse REIT’s share price plummeted. Why?

Economists predicted that the proposed tax cuts would lead to higher inflation. And the Bank of England responded by saying they would raise interest rates to whatever level necessary to get inflation under control.

This turn of events understandably created concern among real estate investors. After all, buying property isn’t cheap, and debt is often the tool of choice to finance such transactions. If interest rates rise, it puts more pressure on profit margins and, in turn, dividends. That’s why shares of this FTSE 250 company were hit hard, along with its peers.

Yet, upon closer inspection, I believe investors have overreacted. Warehouse REIT has around £283m in debt on its balance sheet. When comparing the interest rates on its loans to operating rental income, the group has solid coverage of more than five times. This creates a robust buffer to absorb the impact of future potential rate hikes.

However, getting further into the weeds reveals the group’s interest rates on its loans are fixed at a maximum of 1.75% until November 2023. And with inflation already starting to fall and the government performing a U-turn on some of its tax cuts, I don’t believe the impact on Warehouse REIT will be as severe as most are assuming.

That’s why, despite the risk, I’ve just added this FTSE 250 stock to my portfolio.

Both of the stocks are real estate investment trusts (REITs). These are companies set up to yield income from property. I like REITs because 90% of profits must be returned to shareholders.

Stock #1

The first stock is Warehouse REIT (LSE:WHR). It specialises in purchasing, revamping, and renting warehouse space to other businesses for their e-commerce needs specifically.

So what’s happening with Warehouse shares currently? Well, as I write, they’re trading for 150p, which is the exact same amount as this time last year. I noticed that the stock has climbed 8% from 138p to current levels since July. I believe the shares climbed due to an announcement of an acquisition, a dividend declaration, as well as a new warehouse facility in Crewe.

So let’s look at what attracted me towards Warehouse shares. The shares currently still look good value for money on a price-to-earnings ratio of just under 4. And the dividend yield is close to 4.5%.

Finally, Warehouse has a good track record of performance. I’m aware that past performance is no guarantee of the future. However, looking back, I can see it has grown revenue and profit for the past four years. Performance growth underpins dividends that boost my passive income stream.

Despite my position in Warehouse shares, I must note risks that could cause issues. Firstly, Warehouse has benefited from a lack of supply of quality warehousing space. I can’t help but think that if supply and demand were to converge, Warehouse could see performance and dividends fall.

Stock #2

The next stock is Regional REIT (LSE:RGL). It focuses its operations on commercial properties such as office buildings and industrial spaces located outside the M25 motorway.

So what’s happening with its shares currently? They’re trading for 70p as I write. This time last year, the stock was trading for 83p, so that’s a 15% decline over a 12-month period. A number of my passive income stocks have pulled back in recent months due to macroeconomic headwinds, as well as the tragic events in Ukraine.

The bull case for Regional shares comes with the dividend yield at an enticing 9.5%. This is higher than the FTSE 100 average of 3%-4%. And the shares look even better value for money due to the price pulling back. They currently trade on a price-to-earnings ratio of 10.

Finally, Regional also has a consistent track record of performance. I can see it has recorded consistent revenue and profit in the past four years.

So to the bear aspects of Regional shares. I believe the biggest issue it could face is soaring inflation resulting in higher costs for businesses that rent its buildings. Could these costs spiral to a point where businesses close or struggle to pay their rent? If so, performance and any passive income I hope to make could be affected.

Despite any negatives, I purchased shares in both companies to buy and hold for the long term. I believe they’ll provide consistent and lucrative returns for my holdings.