On the hunt for the best dividend shares to boost my passive income, I came across Big Yellow Group (LSE: BYG).
Self-storage REIT
Big Yellow Group is a real estate investment trust (REIT). It is the largest provider of self-storage solutions in the UK, which is a burgeoning market but more on that later.
REITs are basically property stocks that make money from owning, managing, and renting out property in different shapes and forms. The beauty of them is that they must pay out at least 90% of profits to shareholders as dividends.
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I already own a few REITs as part of my holdings and I’m looking for more.
As I write, Big Yellow shares are trading for 1,035p, compared to 1,129p at this time last year. This is an 8% decline over a 12-month period. Macroeconomic issues in recent months have pushed the shares down but this just means there’s a buying opportunity, if you ask me.
Dividend shares come with risks
Let’s start with the simple fact that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time.
Regarding Big Yellow Group, self-storage is a market that has exploded in recent times as demand soars. Although it possesses a dominant market share at present, competitors are emerging. These rivals could eat away Big Yellow’s market share, which could hurt performance and returns.
Finally, the commercial property sector and economic outlook is still pretty murky. A cost-of-living crisis as well as cost-cutting measures from businesses could mean that Big Yellow’s services and property may drop off, at least in the shorter term.
Why I’m a fan of Big Yellow shares
As with all dividend shares I review, I want to understand the level of return on offer. I do this by checking the dividend yield. At present, Big Yellow shares yield 4.3%. This is higher than the FTSE 100 average of 3.8%.
Next, as mentioned earlier, demand for self-storage solutions is increasing and Big Yellow could capitalise. Some factors contributing to this include soaring numbers of renters who may need self-storage units. In addition, an e-commerce boom should help Big Yellow capture commercial customers. Commercial customers often commit to long-term contracts, which could provide stable revenues to boost performance and payouts to shareholders.
Finally, although past performance is not an indicator of the future, I’m buoyed by Big Yellow’s track record. It has increased revenue and profit for the past three years.
To summarize, Big Yellow’s enticing passive income opportunity, market position, and the surging demand for its solutions helped me make my decision. I’ll be adding some shares to my holdings the next time I have some cash to spare.
