I expect big passive income from Big Yellow Group

With stellar growth over the past decade, this Fool thinks this passive income investment is set for further success. Let’s find out why.

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Finding great British passive income investments isn’t easy. Sometimes, the shares have a high dividend yield, but the price is headed downward. What’s the use of getting income if I’m losing all of my asset value?

Thankfully, I’ve found one company that I think will give me both price appreciation and a hefty dividend.

A storage-property investment

Big Yellow Group (LSE:BYG) is a real estate investment trust. But instead of renting out residential or commercial properties, it owns and rents out lots of self-storage facilities around the UK.

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The company also sells packing supplies and offers insurance on the items customers place in storage. I like that the firm takes its security seriously, with round-the-clock surveillance of sites and security codes for self-access. That helps prevent any reputational harm that would, in turn, affect shareholders.

Wonderful previous price growth

Over the past decade, the shares have seen a lofty 93% growth in price. That equates to a 6.8% compound annual growth rate.

As it’s a member of the FTSE 250 index, we should see how the company performs compared to the rest of its peers combined. Clearly, Big Yellow is way above average:

The group’s stellar balance sheet has certainly helped it to create great results. Over the past decade, it had roughly 73% of its assets balanced by equity as a median. At this time, it’s an even better 80%. About 0.55% is normal for its industry, so you can see why I’m impressed.

And with analysts expecting 8.7% annual earnings growth over the next two years, I reckon the investment is likely going to keep on rising in price.

A closer look at the dividend

The company currently has a dividend yield of around 4.4%, and it has 13 years of no dividend reductions, meaning I consider it a safe haven if I’m looking for residual income.

Another element I like is that the yield has gone up over time. It was once around 1% in 2006.

Also, if I bought the shares five years ago, my yield would actually be 6.2% at the moment. That’s because I get dividends from the market price, not what I initially paid.

Nothing is perfectly safe

While the investment looks very compelling to me, I have to be aware that any serious knocks to the real estate market are likely going to affect Big Yellow somewhat. Therefore, I’d want to protect myself by diversifying my investments to other industries and even asset classes.

Also, I should remember that past returns are no guarantee of future results. Serious competitors might arise that take market share, especially if larger firms from overseas decide to come to the UK for expansion purposes. Public Storage from the US comes to mind. If Big Yellow fears it may be knocked off the top spot in the UK, its dividend may be reduced so it can plough some earnings into protecting its market position.

One of my top dividend picks

This one’s high up on my watchlist when it comes to income investing. With such a high yield and a share price that has been going up over time, I’d sleep well at night being a Big Yellow shareholder. But I’m not buying the shares just yet; I’ve got some other investments to make first.

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.

Oliver Rodzianko 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.

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