Dividend income or growth? These FTSE 250 shares have both

David Barnes sees no need to choose between dividend income or growth when these two property shares from the FTSE 250 offer both

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

In the FTSE 250 alone, 108 companies have cancelled, suspended or cut their dividends this year. According to AJ Bell, UK dividend payments have fallen by around £40bn in 2020.

But I believe there are still some great investments out there offering dividend income. I’ve identified two property-related shares from the FTSE 250. I think both offer attractive dividends and share price growth.

Box up this FTSE 250 gem

One of the top performers in my own portfolio is FTSE 250 Real Estate Investment Trust Tritax Big Box REIT (LSE: BBOX). The company does as its name suggests. It owns huge distribution warehouses in strategic locations near main transport hubs and large cities.

The high-tech facilities are rented out by blue-chip retailers. As such, the company is not expecting many defaults on rent. It said it expected that 99% of Q3 rents should be collected by the end of the quarter. This type of consistency alongside long leases creates a very dependable revenue stream.

The FTSE 250 firm has been profiting from the shift to online shopping. As a REIT, it is required to distribute at least 90% of its tax-exempt profits excluding capital gains back to shareholders.

In a trading update earlier this month, Tritax confirmed it was cutting its H1 dividend by 9% to 3.1p per share. However, this still equates to around a 4.2% annual dividend yield. Given its REIT status, this provides some limited security to the dividend income.

The REIT is also growing, with operating profit in H1 increasing by a quarter to £70.6m. Revenue has increased from £44m in 2015 to £144m at the end of 2019. I think Tritax offers the rare combination of a safe looking dividend and growth in the share price.

Another dividend income champion

Fellow REIT and FTSE 250 member Big Yellow Group (LSE: BYG) focuses on self-storage. You may have seen its distinctive giant yellow metal boxes.

Britain is a nation of hoarders, and Londoners in particular, living in cramped, overpriced housing are in dire need of storage. Therefore, it seems a sensible business model, in my opinion, to be a self-storage company focusing on London and its commuter towns.

The company has been growing through acquisitions, developments and rising occupancy and rent rates for some time. It has 13 sites in development and recently acquired a site in Wapping for £18.6m.

Revenues and dividends per share have been edging up since 2015. A Q2 trading update confirmed that revenues advanced 2.3% to £31.8m. This was despite a significant reduction in demand from March.

As you might expect, domestic and student move-ins saw annual drops. But this was partially offset by a 28% increase in business move-ins.

The total dividend was actually lifted by 1.8% to 33.8p per share. This equates to a dividend income of around 3.2%.

With both FTSE 250 firms operating on a price-to-earnings ratio in the mid-20s, I don’t think either are bargains. But REITs offer diversity to a portfolio and the combination of progressive dividend income streams and share price growth makes both companies great buy-and-hold candidates in my opinion.

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.

David Barnes owns shares in Tritax Big Box REIT and Big Yellow Group. The Motley Fool UK has recommended Tritax Big Box REIT. 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »