Down 45% in price with a 4% yield, I think this is an intelligent passive income investment

Oliver Rodzianko thinks storage REITs are one of the best places to invest for passive income. Safestore is one of his favourites.

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When looking for passive income from dividends, my preference is usually real estate. Property prices reliably increase over time, and I can get a nice rental yield from a flat or apartment while the property appreciates in value.

However, let’s be real. Most people, including myself right now, can’t afford to buy a flat or house outright and start charging rent. Maybe one day, but it’s a way off at the moment. Thankfully, there’s still a way I can get a slice of the action, which is through real estate investment trusts (REITs).

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.

Storage REITs are my favourite

Even if I did have the money to buy an apartment or house outright to rent out, I probably wouldn’t do it. Here’s why.

First of all, that would arguably take up most of my money. It would make more sense for my long-term future to build a diversified investment portfolio full of wonderful corporations and hold some REITs within that portfolio. That way, I can generate some healthy dividends from property while still getting a slice of businesses that aren’t involved in real estate.

There are plenty of wonderful REITs out there, but I like storage property companies. The reason is that they are reliably less prone to recessionary pressures. Also, the maintenance fees for storage units are usually lower than living accommodations because people aren’t living in them all year round. They’re just storing their goods for when they need them.

And one of the storage REITs that I’m considering investing in is Safestore (LSE:SAFE).

What I admire about the business

Safestore operates in six countries, but most of its revenue comes from UK storage units. It’s a simple business, and I usually like that. Warren Buffett always teaches that we should invest in what we know. Thankfully, I think most people can get their heads around storage units.

Safestore is growing really fast. Management has even stated in its 2023 annual report that the storage unit industry could be viewed as still immature. That’s good for investors because it means the popularity of storage could increase over time, and shareholders would profit handsomely from the growth.

Assessing the opportunity

At the moment, Safestore shares are down around 45% in price, and the dividend yield is almost 4%. Additionally, over the past 10 years the firm’s share price has grown around 250% in price. I think all of those elements combined show a really compelling opportunity for me.

But there’s also a fair amount of growing competition. The most notable competitor is Big Yellow Group. The two firms have a little bit of a rivalry going on. If Big Yellow expands more aggressively over the long term, it could end up being able to offer more competitive pricing. That could, in turn, reduce Safestore’s value in the market and affect shareholder returns.

However, I think Safestore’s market position is relatively safe for some time yet. So, I’ll be looking at investing in it soon.

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 recommended Safestore Plc. 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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