Dividend payments from stocks in my holdings could make me a passive income. Real estate investment trusts (REITs) are designed to reward investors with dividend payments for the capital they have parted with to buy shares. Here are two I would buy and hold for my portfolio.
How can I make a passive income from a REIT?
A REIT is an investment trust that specialises in property investment. Property investment can be costly and time consuming. REITs offer the opportunity to invest in property without the hassle, management, or cost of traditional property investment. A REIT invests capital from shareholders into residential, commercial, or development properties that yield returns. These returns are paid to shareholders as dividends.
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There are currently over 50 REITs in the UK. A REIT must distribute 90% of its tax-exempt property income profit each year as dividends. This is how shareholders make a passive income.
Risks of investing in REITs must be noted. General economic conditions affect rental income, which in turn affects any return. In addition to this, recent inflation and living costs could mean many REITs struggle to collect rent from people and businesses. This could also affect dividends.
Land Securities (LSE:LAND), known as Landsec, is one of the largest REITs in the UK. It has a diverse range of properties on its books currently. Landsec’s portfolio is currently worth £11bn.
As I write, Landsec shares are trading for 803p. At this time last year, the shares were trading for 638p, which is a 25% return over a 12-month period. Landsec’s current dividend yield stands at 4%.
I like Landsec shares for my holdings for three reasons. It has a large footprint with a diverse portfolio of properties, which I think is important to mitigate risk. Secondly, recent results show me that pandemic-related issues such as rental collection are a thing of the past. If a new variant occurs, this could place new pressure on rent collection and dividends, however. Finally, the property market in the UK is booming. Rising prices have led to many more consumers and businesses look towards rental properties. This should boost REITs like Landsec and my passive income.
The next REIT I would add to my holdings is British Land (LSE:BLND). British Land is one of the oldest property firms in the UK with roots dating back to 1856. As I write, it currently owns a portfolio of property worth £10bn plus an additional £2bn worth of assets it manages. BLND focuses on the lucrative London rental market and calls its properties “London campuses.” These are a mixture of work, living, and retail spaces in London.
As I write, shares in British Land are trading for 555p. At this time last year, shares were trading for 436p, which is a 27% return over a 12-month period. British Land’s dividend yield is just under 5% as I write.
I like British Land for three reasons. First, it has an excellent track record and roots that stretch back over 150 years. Second, it is one of the largest landlords in the country. Finally, its focus on the London market is attractive. The London property market is lucrative and British Land is currently building one of the country’s largest developments in Canada Water, London. This will boost performance, dividends, and my passive income.