One penny share I want to take a closer look at is The PRS REIT (LSE: PRSR). I believe it could be a good option to boost my passive income.
Private rental sector
PRS is a real estate investment trust (REIT). This means the company owns and operates properties to yield rental income and provide consistent returns to its shareholders. One of the things I like about REITs is that they must return 90% of their profits to shareholders. I already own a few REITs as part of my holdings. PRS focuses on properties in the private rental sector.
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It is worth remembering that a penny share is one that trades for less than £1. As I write, PRS shares are trading for 71p. At this time last year, they were trading for 101p, which is a 29% drop over a 12-month period. Many shares have fallen in recent months due to soaring inflation and rising interest rates.
The investment case
I think PRS shares could be set for a bull run for a few reasons. To start with, many build-to-let landlords, like PRS, tie tenants down to long-term tenancies. This means that revenue is stable and consistent. Next, a shortage of new homes and falling house building numbers have meant that many people have turned to the rental market. Finally, with mortgages harder to obtain, due to higher interest rates and a cost-of-living crisis, many are turning to rental properties. All of these factors could boost PRS’s future earnings and returns.
From a returns perspective, PRS’s dividend yield stands at 5.4% currently. This is above average for a penny share. In fact, it is higher than the FTSE 100 average of 3%-4%. However, I do understand that dividends are never guaranteed.
Finally, PRS shares look good value for money on a price-to-earnings ratio of just four at present.
From a bearish perspective, PRS, like any REIT, may struggle with rent collection, which can adversely impact revenue and investor returns. However, PRS doesn’t seem to have that issue right now. For the three months to June, it reported it only failed to collect 3% of its total rent.
Another issue for PRS is soaring inflation. This could impact its build-to-let model of business. Higher building costs could negatively impact its bottom line and the level of return it can provide to shareholders.
A penny share I would buy
From a passive income and growth perspective, PRS shares look like they could be a shrewd addition to my holdings right now. I would be willing to buy some shares when I next have some cash to invest.
The current state of the housing sector, as well as the economic outlook, mean that PRS is primed to benefit, in my opinion. This could lead to increased revenue and investor returns that would boost my holdings.
