1 dividend stock yielding 6% could turn my £20K investment into £1,226 passive income

Sumayya Mansoor explains how this dividend stock and its enticing yield could help her aims of building a second income stream.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian man drinking coffee at home and looking at his phone

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

With a P/E ratio of 9, is the Aviva share price a bargain?

Christopher Ruane looks at the Aviva share price and considers some strengths and weaknesses of the FTSE 100 insurance business.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
US Stock

Is it too late to buy growth stock Shopify after its 25% pop?

Up more than 40% this year, Shopify is on fire at the moment. Here, Edward Sheldon explains how he’d play…

Read more »

Investing Articles

Investors should consider buying this energy AIM stock, up 50% in the past year

AIM stock Afentra has seen a stellar price rise in 12 months to November. I believe there may be room…

Read more »

Investing Articles

2 ISA shares to consider for a large passive income!

Looking for dividend shares to buy in a Stocks and Shares ISA or Lifetime ISA? Royston Wild reveals two of…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

A Bitcoin investment that can be held inside a Stocks and Shares ISA or SIPP

UK investors can’t buy Bitcoin ETFs for their investment accounts or SIPPs due to FCA regulation. This stock could be…

Read more »

Entrepreneur on the phone.
Investing Articles

As the Vodafone share price slides 6% on lacklustre H1 results, what does the future hold?

After posting moderate results this morning, Vodafone saw its share price sink further, erasing this year's gains. Our writer looks…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing For Beginners

If I’d invested £5k in a FTSE tracker fund after the pandemic crash, here’s what I’d have now

Jon Smith explains the extent of his potential gains if he'd invested in a FTSE tracker fund during the Covid…

Read more »

Investing Articles

2 top shares I’ve bought for my Stocks and Shares ISA in November

This writer reveals a pair of fast-growing businesses that he's recently added to his Stocks and Shares ISA for the…

Read more »