In order to boost my passive income, I am on the lookout for dividend stocks. One way I do this is by buying stocks known as real estate investment trusts (REITs) for my holdings. This is because REITs must pay 90% of profit they make from income-yielding property to shareholders. One REIT I believe could boost my returns is Custodian REIT (LSE:CREI). Here’s why.
Diverse REIT
As a quick introduction, Custodian is a REIT that focuses on multiple sectors of property across many towns and cities across the UK. These include industrial, commercial, office, and retail properties. The properties it owns and rents out help make it that rental income that is then paid to investors such as myself.
So what’s happening with Custodian shares currently? Well, as I write, they’re trading for 105p. At this time last year, the stock was trading for 94p, which is an 11% increase over a 12-month period.
Risks to note
I believe the biggest threat to any REIT currently is economic volatility and any recession that could occur. This is because when the economy is volatile, rental income, as well as demand for property, could be negatively affected. If this were to happen, Custodian’s performance and returns could be affected.
Next, as with any passive income stock, I must remember that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time. Dividends are usually cut to conserve cash and some of the causes can include financial difficulty, a recession, or a one-off event like a pandemic.
Why I like Custodian shares
So let’s take a look at the bull case then. Firstly, I like that Custodian’s property portfolio is diversified from a sector and geographical perspective. It has different types of income-yielding property in various locations throughout the country. I believe this will support performance and growth — if one location or sector slows, growth in another could offset it.
Next, Custodian shares offer a dividend yield of 6.3% at current levels. This is higher than the FTSE 100 and FTSE 250 averages of 3%-4% and 1.9%, respectively. Furthermore, the shares look decent value for money currently on a price-to-earnings ratio of just four.
Finally, although I understand past performance is not a guarantee of the future, I am buoyed by Custodian’s track record. Looking back, I can see it has recorded consistent revenue for the past four years and profit for the past three years. This level of sustained performance should support consistent returns.
In conclusion, I would add Custodian REIT shares to my holdings currently. I believe they would fit into my portfolio nicely along with the other REITs I own shares in. The dividend yield on offer, cheap share price, and the diverse nature of its operations help build my investment case.
