I’ve learnt that dividend shares come in all shapes and sizes. One FTSE 250 pick that grabbed my attention recently is Urban Logistics REIT (LSE: SHED).
Here’s why I’d buy the shares for my holdings the next time I have some funds to invest.
Last mile delivery
As the name alludes to, Urban is set up as a real estate investment trust (REIT). This means in exchange for favourable tax conditions, it must return 90% of profits to shareholders. This makes it an attractive prospect from a dividend perspective, to me at least.
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.
Urban specialises in warehousing and logistics properties, but focuses on last mile delivery assets. This helps businesses with online and e-commerce stores to cater to their customers, and ensure they can fulfil orders efficiently.
The shares have meandered up and down like a roller coaster. Over a 12-month period, the shares have gained 3%, from 116p at this time last year, to current levels of 120p. Economic turbulence has hurt the commercial property market, but more on that later.
The good stuff
Starting with the positives, I’m buoyed by Urban’s modus operandi, and the fact it caters to the ever-growing e-commerce sector. Warehousing in general has grown exponentially in recent years due to soaring demand. However, online shopping and changing consumer habits have meant the need for such last mile delivery hubs is outstripping supply. There are currently no signs of this slowing either. This could spell good news for Urban’s earnings, and could translate into increased shareholder returns.
Speaking of returns, a dividend yield of 6.2% is attractive. For context, the FTSE 100 average is 3.5%. However, I do understand that dividends are never guaranteed. Plus, the firm possesses what looks like a strong balance sheet, as mentioned in its recent FY24 report. This can help with future growth and shareholder return initiatives.
Let’s break down the key takeaways I took from the report, released in June. Net rental income increased compared to the previous year by over 8%. Crucially, the business managed to turn a profit, compared to a loss last year. A dividend of 7.6p per share was the same as last year.
Potential risks
From a bearish view, I must admit economic turbulence is still a concern for me. As we’ve seen recently, higher interest rates present a problem. They can impact rent collection, increase the chances of defaults, and make debt management costlier. Plus, net asset values (NAVs) have been driven down too. We aren’t out of the woods yet, and I’ll keep an eye on developments.
Another issue I’ll be watching closely is Urban’s propensity for acquisitions to boost growth. Acquisitions are great when they work out. However, when they don’t, they can have untold financial damage and hurt investor sentiment too.
Overall, there’s lots to like about Urban Logistics, in my view. A thriving sector with growth ahead, an enticing level of return on offer, and excellent results recently have helped me make my investment decision today.
