I am on the lookout for stocks to boost my passive income stream through dividend payments. One stock I purchased a few months ago to do this is Warehouse REIT (LSE:WHR).
Warehouse specialists
Warehouse REIT is a business that is set up to purchase, revamp, and rent out warehousing space to businesses to help growth.
A real estate investment trust (REIT) is a business set up to yield income from rent-producing property. As part of this setup, 90% of profits must be paid to investors.
So what’s happening with the Warehouse share price currently? Well, as I write, the shares are trading for 152p, which is the exact same figure the shares were trading for at this time last year. The shares have dropped 13% since early April, when they were trading for 176p. I believe this is because of the stock market correction due to macroeconomic pressures and geopolitical issues.
Why I added the shares to my holdings
For a stock to boost my passive income stream, it must have two vital components, in my opinion. The first one is a good track record of performance. This performance underpins dividends. I do understand past performance is not a guarantee of the future, however.
Looking back, I can see Warehouse REIT has grown revenue and profit for the past four years in a row. Coming up to date, in May, it released a full-year update for the period ending 31 March 2022. The results showed great growth with gross property income, profit, and its portfolio size increasing compared to 2021. Crucially, its dividend per share increased too.
So what’s the next component? For me it is its dividend record and dividend yield. Warehouse’s dividend record is consistent. Its current dividend yield is just over 4%. This is higher than the FTSE 100 average of 3%-4%. As a bonus, the shares look relatively cheap currently on a price-to-earnings ratio of just over three.
Finally, the current demand for warehousing space is growing. This was also a factor in helping me decide to buy the shares. Demand for warehousing space is currently outstripping supply. The e-commerce boom coupled with pandemic restrictions has also led to businesses needing warehousing space. Firms like Warehouse are primed to benefit.
Passive income stocks have risks too
One of the biggest risks of any dividend stock is the fact that dividends are never guaranteed and are paid at the discretion of the business. Warehouse could cancel dividends if performance levels dropped. A prime example of dividends being cancelled by many companies was when the pandemic struck in 2020 and businesses looked to conserve cash.
I also believe there is a risk that the demand for warehousing space coupled with the low current supply could meet. This convergence could result in performance of businesses like Warehouse REIT being negatively affected.
Despite the risks mentioned, my investment strategy has always been to buy and hold for the long term. I believe Warehouse REIT will continue to pay a consistent dividend and boost my passive income stream for years to come. Warehouse REIT is one of a number of REITs that I own as part of my portfolio.
