Should I buy this FTSE 250 property stock for consistent returns?

This Fool is looking to supercharge his returns and delves deeper into the FTSE 250 property stock that focuses on student accommodation.

| 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.

Asian Indian male white collar worker on wheelchair having video conference with his business partners

Image source: Getty Images

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.

FTSE 250 incumbent Unite Group (LSE:UTG) suffered when the pandemic struck. With these lockdown restrictions now a thing of the past and student numbers returning to normal, could the shares and returns head in a positive direction? Let’s take a closer look at whether I should buy the shares for my holdings.

Student accommodation provider

As a quick reminder, Unite is one of the largest student accommodation providers in the UK. It has established relationships with over 60 universities in the UK and provides over 75,000 beds to students all over the country.

So what’s happening with Unite shares currently? Well, as I write, they’re trading for 1,130p. At this time last year, the stock was trading for 1,195p, which is a 5% drop over a 12-month period. I’m not concerned by this small drop, as many FTSE 250 stocks have dropped due to macroeconomic factors as well geopolitical events.

A FTSE 250 stock with risks

However, Unite and its shares could come under further pressure, in my opinion. Firstly, it has a fair amount of debt on its books. This could become costly due to the current rising interest rates being introduced to combat soaring inflation. Servicing debt with higher interest rates can have a material impact on the company’s balance sheet, performance, and returns too. This could also affect investor sentiment.

Next, the pandemic meant many students did not require student accommodation and the way education continued changed too, by moving online. There is a chance that as the world continues to live with Covid-19, demand could be affected due to these changed ways of learning. Furthermore, the spectre of new variants still looms despite this being a small risk, in my opinion.

The positives and my verdict

So to the positives then. Unite is on a major growth drive. In fact, it has a pipeline of over 5,000 new rooms. This is linked to the fact that demand for student accommodation is outstripping supply. As one of the UK’s largest providers, it is in a unique position where it can leverage this into boosting performance, and hopefully returns.

Next, let’s take a look at Unite’s performance track record, although I do understand that past performance is not a guarantee of the future. Looking back, I can see it has grown revenue and profit for the past four years in a row. This growth is impressive and helps underpin returns and boost investor sentiment.

Finally, Unite shares could boost my passive income stream through dividend payments. I am aware that dividends are never guaranteed and can be cancelled at any time, however. Unite shares’ current dividend yield stands at 2.4%. This is over the FTSE 250 average of just below 2%. As a bonus, the shares look good value for money on a price-to-earnings ratio of just eight.

Overall, I would add Unite shares to my holdings. I believe the business’ growth drive will be successful and boost performance in the future. This should provide me with consistent and stable returns in the long term.

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.

Jabran Khan 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

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »