UK share prices are rising again following encouraging inflation data on both sides of the Atlantic. However, significant weakness earlier in 2023 means the London Stock Exchange remains a great destination for investors chasing a second income.
Heavy price drops previously mean that many top-quality dividend stocks still offer yields above their historical norms. I’m currently building a list of income shares I’m hoping to buy on the back of their excellent dividend forecasts.
Of course, dividends are never guaranteed. But I think the following real estate investment trusts (REITs) could be terrific buys for 2024.
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Safe as houses
High interest rates have damaged property stocks like The PRS REIT (LSE:PRSR) by pushing borrowing costs higher and depressing net asset values (NAVs).
This could remain a problem next year if inflation remains ‘sticky’ and well above Bank of England targets. But on balance I think the residential landlord is an ideal stock for me to buy.
Rents are soaring across Britain. This reflects weak housebuilding rates in recent decades and, more recently, a sharp decline in the number of buy-to-let landlords. Steady population growth means that demand is comfortably outstripping supply.
PRS REIT reported like-for-like rent growth of around 7% on stabilised sites in the last financial year (ending September) as a result. On top of this, its re-lets to new tenants sprang 12% higher, up 200 basis points from the previous year.
This bodes well for the current financial year and most likely beyond. Indeed, estate agency Hamptons has predicted that residential rents will rise four times faster than house prices between 2023 and 2026.
I think PRS REIT could be too cheap for me to miss at current prices. Earnings are expected to soar 34% in the current financial year. This leaves it trading on a sub-1 price-to-earnings growth (PEG) ratio of 0.5.
On the dividend front, its yield sits at 4.6% for financial 2024. And predictions of sustained payout growth drive the dividend yield to 5% by 2026.
6%+ dividend yields
These large yields reflect in large part REIT rules governing dividends. These specify that at least 90% of yearly rental profits are returned via shareholder payouts.
These principles also lead to heroic dividend yields at storage and distribution hub operator Urban Logistics (LSE:SHED). For this financial year to March 2024, this sits at 6.3%.
Like PRS REIT, City analysts expect dividends to rise strongly over the medium term, too. So the company’s yield marches to 6.9% for fiscal 2026.
Warehouse operators like these face some uncertainty as the UK economy flounders. Demand for its space could fall if consumer spending remains under pressure and e-commerce volumes falter.
However, a chronic undersupply of new properties means that rents at Urban Logistics should continue rising strongly. Net rental income rose 12.% during the six months to September thanks to this ongoing balance.
I’m also optimistic because of the long lease agreements the firm ties its tenants to. Its weighted average unexpired lease term (or WAULT) stood at eight years as of September.
Themes like the growth of e-commerce and post-pandemic changes to supply chains mean Urban Logistics should have a bright future.
