One income stock I’m considering adding to my holdings is Empiric Student Property (LSE: ESP). Let’s take a closer look at whether I should buy or avoid the shares.
Student accommodation properties
Empiric is set up as a real estate investment trust (REIT) and focuses on student accommodation buildings. The great thing about REITs is that they are obliged to return 90% of their profits to shareholders as dividends, making Empiric a potentially juicy income stock if you ask me.
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Let’s take a look at Empiric’s share price in recent times. As I write, the shares are trading for 89p. At this time last year they were trading for 86p, which is a small 3% gain over a 12-month period.
The bull case
When the pandemic struck and remote working became the norm, virtual studying also rose in numbers. Many students even deferred their studies so businesses like Empiric saw its uptake and performance dented. However, I can see from recent performance and results that the business has bounced back well.
A trading update Empiric released last week made for excellent reading. CEO David Garrood said the booking cycle for the 2023/24 academic year had “exceeded all expectations”. The results showed that 99% revenue occupancy had been achieved. Like-for-like growth in average weekly rents jumped by over 10%.
As with any income stock, I want to understand my level of return. A dividend yield of 4% is attractive, especially when I consider the FTSE 250 average yield is 1.9%. A separate dividend declaration after the trading update showed an interim dividend hike of 16% compared to the same period last year.
Finally, data shows that there is a shortage of student beds compared to rising demand. This is good news for Empiric. If it can help fulfil this demand, its performance and payout could increase.
An income stock I’d buy with risks to bear in mind
One of the bigger issues Empiric may face, at least in the short term, is that of rising interest rates. Commercial properties become harder and costlier to obtain during these times so Empiric could find its propensity for growth slashed.
Another factor that could hurt Empiric is a focus by the government on curbing foreign student visas. Recent investigations have shown many fraudulent student visas being obtained and a review is underway. If any bans or tighter controls were implemented, Empiric could find its performance dented.
Overall I believe Empiric is a good income stock that could boost my holdings. The business is on the up, and could experience strong demand for years to come which should boost performance and returns.
Realistically speaking, I don’t have lots of cash in the bank to buy every stock I like. However, I’d be willing to buy some Empiric shares when I next have some cash to invest.