Urban Logistics REIT (LSE: SHED) is a dividend stock I’ve been eyeing up for a while. Here’s why I’d snap up some shares when I next have some available cash.
Last mile delivery
Urban is set up as a real estate investment trust (REIT) which means it makes rental income from property assets. The allure of REITs is that they must return 90% of profits to investors. The business specialises in industrial and logistics-style properties with a focus on ‘last mile’ delivery. Many of its assets are smaller, single-let properties situated in key strategic locations throughout the country.
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Over a 12-month period, the shares are down 10%, from 141p at this time last year to current levels of 126p.
I reckon volatility in the economy and its impact on the property market has held the shares back.
Attractive business model and market beating dividends
Businesses in the logistics and industrial property space have been on the up in recent years. This is linked to the e-commerce boom, which exploded even further during the pandemic when many of us were locked down and began taking advantage of online shopping even more. Urban’s focus on the last mile delivery is shrewd, and one reason I’m a fan of the stock.
Next, Urban’s track record of performance and growth is enviable. Although I understand past performance is not a guarantee of the future, it’s hard to ignore consecutive yearly revenue growth and an increasing footprint.
Moving on, with good performance consistently, Urban can reward shareholders handsomely. A dividend yield of 6% is attractive. For example, if I had £20K to invest now, I could make £1,226 in a year in dividends. However, it’s worth noting dividends are never guaranteed.
Finally, Urban’s client list is enviable, with names such as Boots, Sainsbury’s, and DHL renting its properties. These types of firms have strong businesses with robust demand. This is good news for Urban, as it means they’re less likely to default on rent than smaller, less stable firms. Plus, there could be opportunities to grow the partnership and rent further space to them.
Risks and final thoughts
Continued macroeconomic volatility is a risk, especially inflation and higher interest rates, for a few reasons. Firstly, debt is costlier to pay down when rates are higher, potentially impacting return levels. Next, borrowing for growth purposes may be costly too and higher inflation can impact margins.
The other risk I’m wary of is Urban’s propensity for acquisition-led growth. It looks to have served it well to date. However, if experience of investing has taught me anything, it’s that one bad acquisition can be costly to dispose of and leave lasting reputational and financial damage.
Overall, the rewards outweigh the risks by some margin, for me. A shrewd business model, attractive passive income opportunity, and excellent commercial partnerships are what lead me to believe this could be a good dividend stock for me and my holdings.
