Investing in real estate investment trusts (REITs) can be a great way to generate passive income. Here in the UK, REITs are required to distribute the vast majority of their profits to shareholders. As a result, they can be absolute cash cows for investors.
Here, I’m going to highlight three REITs that have attractive yields today. Investing in these companies could generate quite a bit of passive income.
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A safer REIT
There’s a lot to like about this company from an investment perspective, to my mind. Not only does it look set to benefit from the UK’s ageing population in the years ahead (older people typically require more healthcare services), but it also receives a lot of its rent from the UK government. This combination makes it safer than a lot of other REITs on the London Stock Exchange, in my view.
As for the income potential here, it’s quite healthy. Currently, analysts expect the company to payout 6.71p per share for 2023. This means that a £2k investment today could generate annual income of around £130.
Next we have Tritax Big Box (LSE: BBOX). This is a real estate company with a focus on large, e-commerce warehouses.
There are two main reasons I like this REIT. One is that the company is well-placed to benefit from the growth of the online shopping industry. In the years ahead, UK e-commerce sales are predicted to climb significantly.
The other is that it has blue-chip tenants such as Amazon, Tesco and M&S. This means its rental income is unlikely to suddenly evaporate.
Zooming in on the dividend, Tritax is expected to pay out 7.2p per share to shareholders for 2023. So a £2k investment could potentially deliver annual income of around £100.
Finally, we have Workspace (LSE: WKP). It offers flexible office space solutions across London.
This company had a tough time during Covid. That’s because with everyone working from home, demand for office space plummeted.
The outlook is improving now though. Today, companies across all industries are bringing employees back to the office. This should benefit Workspace, which can provide flexibility for businesses with changing needs.
This isn’t just a short-term story however. In the long run, the company looks well-placed to benefit from London’s thriving start-up scene.
Turning to the dividend, analysts currently expect Workspace to pay out 24.7p per share in dividends for 2023. That equates to annual income of around £94 on a £2k investment.
Diversification is important
It’s worth pointing out that REITs have their risks. One is their exposure to interest rate movements. Most REITs have significant loans that need servicing. This explains why a lot of them have seen their share prices fall recently. Higher interest rates could eat into profits, and potentially reduce future dividends.
Given the risks, REITs are best owned as part of a balanced and diversified portfolio.