Both are real estate investment trusts (REITs). This means they’re set up as businesses to yield rental income from property. They must return 90% of profits to shareholders like me! However, I do understand that dividends are never guaranteed.
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Here’s why I bought these stocks and may even buy more soon, as both stocks have fallen due to macroeconomic volatility.
Office and industrial properties
Regional owns a commercial property portfolio made up of office space and industrial units outside of the M25 motorway.
I’m a fan of Regional’s diversification. By not putting its eggs in one basket, one area of the business could offset any potential weakness in the others. For example, demand for office space has dwindled since the pandemic pushed home working levels up. However, demand for industrial space is on the rise due to the e-commerce boom.
I’ll keep an eye on office space demand through its trading updates, as it could potentially hurt performance and any returns I’m hoping to make.
As I’m looking for sustainable passive income, Regional’s share price drop doesn’t worry me. A dividend yield of 16% looks temporarily inflated. Remember, when shares fall, the yield is pushed up. Current market volatility has hampered the shares but I reckon in the longer term the yield will even out. More importantly for me, any dividends look well covered by earnings.
Plus, a trailing 12-month price-to-earnings ratio of just six makes the shares look enticing to me — enough to potentially load up on more.
My assertion regarding Regional’s turnaround is supported by a positive Q3 update and dividend declaration released earlier this month. The firm said a number of lease renewals had been achieved, helping support a retention figure of 73%. Renewals helped record a 6.2% uplift in rental income. Plus, despite challenging market conditions, in Q3, it managed to collect over 95% of rent on time.
I’ll bank my dividends and eagerly await full-year results.
Warehouse spaces for businesses
Warehouse REIT owns a portfolio of warehouse assets. These include for industrial, manufacturing, storage and distribution, and trade-counter and retail purposes.
I’m a fan of Warehouse’s focus on the burgeoning storage sector. This particular market has seen huge growth and a spike in demand, especially since the pandemic. As mentioned earlier, the e-commerce boom has led to a hike in demand for these spaces. Warehouse should continue to benefit.
From a returns perspective, Warehouse’s yield of 7.7% is higher than the FTSE 100 and FTSE 250 averages of 3.9% and 1.9%. Plus, like Regional, Warehouse’s dividend looks well covered by earnings.
Warehouse REIT shares trade on a trailing price-to-earnings ratio of 13, which is still cheap in my eyes.
One of the bigger risks for me is that a cost-of-living crisis and volatility could hurt Warehouse’s tenants and weaken demand for their products and services. In turn, this may impact their ability to pay their rent. This could hurt any potential payouts from Warehouse.
Overall, I reckon Warehouse REIT looks like a good stock to provide me consistent returns in the longer term.