As with any share, the dividends on real estate investment trusts (REITs) are never guaranteed. But these companies can be great buys for investors seeking long-term passive income streams.
This is for a variety of reasons. They include:
- REITs must pay at least 90% of profits from their rental operations out in dividends, providing income seekers with peace of mind and often high dividend yields
- Tenants tend to be tied onto long contracts, meaning rental income’s steady and predictable over time
- REITs tend to own a large number properties, reducing the impact of rent collection and occupancy issues at group level
- Unlike buy-to-let, investors aren’t just restricted to residential properties and can gain exposure to other sectors that would otherwise be cost prohibitive
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.
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I own several REITs in my portfolio. And I’m searching for others to boost my passive income in 2025 and beyond. Here are two I’m considering today.
Segro
As I say, REITs can offer excellent diversification by investing in a range of properties. Segro (LSE:SGRO) — which lets out warehouses and distribution hubs — takes this theme still further.
You see, the company operates properties in and around major cities across Europe, including in heavyweight economies like Germany, France and Spain. In total, it has operations in eight countries (including the UK).
This doesn’t totally eliminate earnings pressure if the eurozone economy cools. But it does reduce the impact of localised problems on profits and dividends at group level.
Weak construction activity in recent years means Segro’s core market’s grossly undersupplied. And so rents here continue rising strongly, up 5.3% in the first half of this year.
The good news is that, thanks to a poor development pipeline and growing demand, this shortfall looks set to continue. And so profits and dividends here are tipped to continue rising through to 2026 at least, resulting in a meaty 4.2% dividend yield for next year.
Grainger
I think Grainger (LSE:GRI) — which has a decent 3.6% dividend yield for 2025 — is a great option for income investors like me to consider. You see, its focus on the ultra-defensive residential rentals market provides it with even better earnings — and therefore dividend — visibility than many other REITs.
Grainger’s Britain’s largest listed residential landlord with more than 11,000 homes on its books.
There’s another reason why its shares appeal to me as an income investor. Dividends here are rising strongly, up 14% in the last financial year (to September). This reflects rapid rental growth which, on a like-for-like basis, increased 6.3% last year.
City analysts expect further heavy payout increases in fiscal 2025 and 2026 too, of 12% and 13% respectively.
These bullish forecasts are no surprise given how strong market conditions are. There are 25% fewer rental properties today than in 2019, according to Zoopla, and the shortage is rising as the number of buy-to-let investors slumps.
Against this backdrop, rental income at Grainger and its peers should keep shooting higher. I think it’s a top stock to consider, even though higher interest rates could weigh on its earnings in the near term.
