This REIT could be one of the best dividend stocks to buy!

I’m currently looking for the best-value dividend stocks to buy. And I think this REIT could be the perfect one for these uncertain times.

| 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.

Smiling white woman holding iPhone with Airpods in ear

Image source: Getty Images

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.

I think real estate investment trusts (REITs) are great dividend stocks to buy for passive income. This is because they are obligated to pay a minimum of 90% of annual profits to shareholders by way of dividends.

I believe these property stocks could be particularly great to own in the current climate too. Even if economic conditions worsen, earnings at such businesses should broadly remain stable. This is thanks to the long rental contracts they tie their tenants to.

The PRS REIT (LSE: PRSR) is one such stock I’m considering snapping up for 2023. This particular share offers an extra layer of security to investors as it operates in the private residential rental sector. Spending on rent or mortgages is one of the last things people cut during tough times.

Fast-rising rents

In fact, the outlook for the residential rental market is improving rapidly right now. According to Rightmove, the number of enquiries for rental properties has surged 23% over the past year. And while demand is soaring, the number of available properties is steadily declining as buy-to-let landlords exit the market on rising costs.

This growing imbalance propelled private rents 3.8% in the 12 months to October, ONS data shows. The problem looks set to worsen considerably in the near term too, as rising interest rates and economic uncertainty discourage renters from buying their own homes.

Expanding for growth

Shortages of family houses are particularly high right now. This is why trading at PRS REIT, a specialist at this end of the market, is especially strong.

Like-for-like blended rents rose 5.1% here in the 12 months to June. At the same time, re-lets to new tenants rose around 10% over the year.

Encouragingly for investors, PRS REIT is rapidly expanding to capitalise on these favourable market conditions. It raised the number of homes on its books to 4,786 in financial 2022, up an impressive 20% year on year.

And this, combined with that aforementioned rental growth, grew revenues and post-tax profit 58% and 163% respectively from a year earlier.

What’s more, the company plans to have 5,600 homes in its portfolio generating income.

A top-value stock

As I said, rising interest rates have boosted demand for rental homes more recently. However, this is also pushing up the costs PRS REIT is paying to servicing its debt. At the same time, it is also having to grapple with increased building costs, putting a strain on profits.

But increasing cost pressures aren’t enough to darken the REIT’s excellent investment case, in my eyes. In fact, I think it’s a top stock to buy following recent share price weakness.

At 83p per share, PRS REIT trades on a forward price-to-earnings growth (PEG) ratio of just 0.7. It also packs a market-beating 4.4% dividend yield. This represents exceptional value, in my opinion. And so I’ll be looking to buy with the business if I have cash spare to invest.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »