These 2 dividend-growth stocks could help you secure financial independence

These two REITs offer secure income streams.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Dividends can make or break a portfolio’s performance. Studies have shown that around 50% of investors’ returns come from dividends alone, so if you want to match the market, dividends are essential. 

Real estate investment trusts are the perfect dividend stocks. Their dividends are paid out from property income, which is stable and recurring. What’s more, investors can benefit from a rise in the value of the underlying property. 

Building up the portfolio 

LXI Reit (LSE: LXI) is a relatively new trust, and as a result, flies under the radar of most investors. The firm only went public at the end of February and since its IPO, management has been building up the portfolio with funds received from the listing as well as a £55m loan facility. 

Today it announced that it has finished its investment programme, having spent the majority of its funds on a high-quality commercial property portfolio. Across the company’s assets, the average net initial yield is 5.94%, and the weighted average unexpired lease term to first break is 24 years, giving a steady income stream for the next two-and-a-half decades. The income is secured against 17 strong tenants, including the likes of Aldi, Costa Coffee and General Electric while 96% of the leases have index-linked rent uplifts. 

LXI was founded with the goal of producing a steady, secure, inflation-linked income to investors, and it looks as if its property portfolio will help the company meet this goal. Management is targeting a minimum annual dividend of 5p per ordinary share, starting from the financial period commencing 1 April 2018. 

Based on today’s stock price, the expected 5p per share payout works out as a yield of around 4.9%. As well as the 5p per share dividend target, LXI is planning to produce an 8% per annum return for investors over the medium term. This goal will be achieved with the 4.9% dividend yield and yearly valuation uplifts of the property portfolio. 

Unfortunately, as the company has only just completed its property acquisitions, there’s no detail as of yet on the net asset value per share — the metric that’s generally used to value REITs — although the targeted 8% per annum return makes the LXI look highly attractive for buy-and-hold investors. 

Defensive income

Secure Income REIT (LSE: SIR) is one of my favourite REITs because the company has a record of producing returns for investors and has a defensive property portfolio. Indeed, the company’s property portfolio contains 20 freehold private hospitals, giving it an extremely stable income stream from defensive assets. Overall, the group owns a portfolio of 81 real estate assets with a weighted average unexpired lease term of over 23 years and a net initial yield of 5.3%. 

Since 2007, according to the company’s figures, the return on its assets (both income and capital growth) has averaged between 9.5% and 8.5% per annum since inception. And since the REIT’s IPO in June 2014, it has produced a total return for investors of 61%, a compound annual return of 17.2%. 

City analysts expect Secure to pay a dividend of 13.9p per share to investors this year, giving a dividend yield of around 4%. The last reported net asset value per share was 324p, so at the time of writing, shares in Secure trade at a premium of approximately 8% to the underlying asset value. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no stock mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Looking for value stocks? Here’s 1 I’d buy and 1 I’d avoid!

This Fool delves deeper into two value stocks she’s had her eye on and explains why she’s bullish on one,…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

With the Airtel Africa share price in pennies, is it a bargain?

With the Airtel Africa share price having slumped by a quarter in just one month, this shareholder considers some of…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Are these 2 defensive FTSE 100 stocks shrewd buys after recent updates?

This Fool takes a closer look at these FTSE 100 stocks. She admires their defensive traits -- but does that…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The FTSE 100 closes up after full-year results from leading UK firms – are they buys?

Earnings season brings about a lot of ups and downs for the FTSE 100. Yesterday had some particularly good releases,…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy NVIDIA stock as a British investor?

NVIDIA stock is up two-thirds this year alone. Our writer considers some pros and cons, specifically given that he is…

Read more »

Investing Articles

With £2,000 in excess savings, I’d buy 41 shares in this Warren Buffett dividend stock

Stephen Wright thinks one of the best dividend shares to buy right now might be a Warren Buffett stock that’s…

Read more »

Investing Articles

How many Aviva shares do I need to collect a £100 monthly income?

Aviva shares are well suited for passive income purposes. Our writer works out how many would be needed for a…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

£2k to invest? I’d buy 883 shares of this overlooked dividend giant for a second income

This FTSE 100 dividend stock has had a mixed time since floating in 2019 but it looks like a brilliant…

Read more »