A penny share with a 10% dividend yield sounds enticing. This is exactly the case for FTSE AIM incumbent Triple Point Social Housing REIT (LSE: SOHO). Should I buy the shares or is it too good to be true? Let’s investigate.
Social housing investment
Triple Point is classified as a real estate investment trust (REIT). It invests in property, makes money from this property in the form of rental income, and, as part of its REIT status, has to pay out 90% of profits each year to shareholders. I already own a few REITs as part of my portfolio as this offers me a regular passive income.
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Let’s start by looking at Triple Point’s recent share price activity. As I write, the shares are actually down by 41% over a 12-month period. They’re currently trading for 53p, whereas they were trading for 90p at this time last year. It is worth mentioning that such share price volatility is not uncommon for a penny share.
Pros and cons
Starting on a bullish note, Triple Point’s dividend yield is extremely enticing, especially as a penny share. To put it into context, 10% is higher than the FTSE 100 average of 3%-4% and the FTSE 250 average of nearly 2% combined. It is worth remembering that dividends are never guaranteed and can be cancelled at the discretion of the business.
Moving on, Triple Point specializes in social housing for people with special needs and vulnerable individuals. The demand for such properties in the UK is extremely high and there is a severe shortage of such provisions. According to the Local Government Association, over 1.2m people are on a waiting list for social housing provisions. Triple Point could capitalize on this increased demand and leverage this into increased performance and returns.
Finally, although Triple Point is a small REIT in itself, it is actually owned by Triple Point Investment Management which has assets of over £2bn and a good reputation for growth and returns.
On a bearish note, current macroeconomic issues could hamper Triple Point shares and any potential future returns. To start with, property values in the UK are fluctuating and this could impact Triple Point’s overall portfolio value as well as investor sentiment.
Furthermore, many properties purchased by REITs like Triple are financed by borrowing money. Current rising interest rates means higher debt levels as well as increased debt service costs. These issues can affect the bottom line and payout.
In fact, I believe both of the aforementioned macroeconomic issues have contributed to the fall in the Triple Points share price in recent months.
A penny share that would boost my passive income
Upon digging deeper into Triple Point’s enticing yield, I think there’s enough meat on the bones to justify me adding some shares to my holdings as part of my passive income strategy.
I found that Triple Point has a good record of performance and payout. It operates in a property sector that is experiencing rising demand, making it a good opportunity. In addition to this, the fact it is owned by a large, trustworthy investment management business with a good reputation also boosts my confidence it could perform well as part of my holdings.
I’ll be adding some Triple Point shares to my holdings.
