Is this UK stock a no-brainer buy for passive income after its recent update?

This UK stock possesses an enticing investor rewards policy, and an attractive level of return. Is it a shrewd investment for our writer?

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One UK stock I want to take a closer look at is Unite Group (LSE: UTG). It is the UK’s leading student accommodation provider and is set up as a real estate investment trust (REIT).

This basically means it is a real estate business with income-producing property. In exchange for tax breaks, the business must return 90% of profits to shareholders.

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.

A recent update from the business drew my attention to the stock once more. Let’s dissect the update, and decide if I should buy some shares for my holdings.

Recent performance

Unite shares have meandered up and down in recent months. This is linked to the wider economic picture causing market volatility.

Over a 12-month period, the shares are down just over 1% from 949p at this time last year, to current levels of 938p.

The business released a Q1 update last week, and it made for decent reading, in my view. The firm began with positives, including referring to a strong sales cycle for 24/25 student accommodation. Unite said it had already sold 86% of beds for the upcoming student year.

Plus, it is projecting rental growth of 6% for the period. However, I do understand forecasts don’t always come to fruition. Furthermore, despite the economic malaise hurting property values, Unite’s value’s had actually increased, albeit marginally.

With one eye on the future, Unite said it has projects planned to build new accommodation to address soaring demand. An imbalance of demand vs supply has given the business the opportunity to capitalise on potential growth. This could push the shares upwards, as well as boost returns.

As expected, there was a nod to the current difficult economic conditions that could hinder growth and performance, at least in the short term.

The investment case

I must admit the returns policy is a draw for me. This is the reason I already own a few REITs in holdings already. Plus, Unite’s dominant market position is a definite plus point with its wide coverage and brand power. Furthermore, the imbalance I mentioned earlier is ideal for a firm like Unite to be able to address, and grow performance and shareholder returns.

From a fundamentals view, a dividend yield of just under 4% is attractive. However, I do understand dividends are never guaranteed.

Taking a look at the bear case, economic issues could hurt growth aspirations. Inflationary pressures could mean growth is harder, and slower to come by when developing new properties. Furthermore, a recent investigation into the abuse of foreign student visas could curtail a lucrative money-spinner for the business if visa numbers for overseas students are reduced.

My verdict

Overall I like the look of Unite shares and I was buoyed by the recent update. In my eyes, Unite is in a prime position to grow, and continue to provide solid returns.

It is a typical example of a stock that could soar further once volatility eases. With that in mind, I’d be willing to buy some shares when I next have some investable cash.

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.

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