Looking for a large passive income? Consider these REITs in a Stocks & Shares ISA!

Looking for top dividend-paying companies to add to a Stocks and Shares ISA? Here are two on Foolish writer Royston Wild’s radar.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black colleagues high-fiving each other at work

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Real estate investment trusts (REITs) can be a great way to build a large and growing passive income in a Stocks and Shares ISA.

These property stocks are designed to provide investors with dividends. In exchange for corporate tax savings, they must distribute a minimum of 90% of annual rental profits in the form of cash rewards.

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.

Big benefits

This on its own doesn’t make them reliable or generous dividend providers. Like any UK share, the level of shareholder payouts is highly sensitive to profitability.

But REITs have qualities that can make them better dividend deliverers than most other stocks. Rents are contracted, and tenants are commonly tied down on long tenancy agreements. Rental agreements are also typically linked to inflation, which can help these firms navigate rising costs.

Finally, many REITs operate in defensive sectors (like healthcare and food retail). Some also operate across a variety of industries, providing them with stable profits across the economic cycle.

Home comforts

I already own several REITs in my own portfolio. And I’m building a list of others to buy to boost my passive income in the New Year.

Grainger (LSE:GRI), the UK’s largest listed residential landlord, is one such trust I’m considering.

While slowing more recently, private rents continue rising at a strong pace. Newly-let properties are now on average £270 more expensive than they were at the end of the pandemic, Zoopla research shows.

With Britain’s population rapidly growing and buy-to-let investors selling up en masse, the outlook for built-to-rent companies like Grainger looks rock solid. That’s even though build cost inflation remains a threat to profits growth.

On the downside, a 3.6% forward yield isn’t the largest among UK REITs. However, its ultra-defensive qualities — rental income remains stable at all points of the economic cycle — and its growing market position still make it an attractive stock to consider buying.

It’s development pipeline was 4,730 new homes as of September.

Opportunity

Supermarket Income REIT (LSE:SUPR) is another top REIT on my radar today.

Like Grainger, it has a major structural opportunity to exploit as Britain’s population sharply increases. More people mean more mouths to feed, and with that a need for more grocery stores.

And like the residential landlord, it has exceptional defensive qualities.

For one, its operate in a broadly non-cyclical industry. It lets out its properties to a range of major blue-chip supermarkets including Tesco, Sainsbury, Waitrose, and Lidl, providing diversification across the industry’s premium, middle ground, and discount subsectors.

As an investor, I’m also encouraged by plans to boost profits by expanding internationally. In April it acquired a portfolio of 17 Carrefour stores, marking its first foray into the French marketplace.

Expansion via acquisitions like this expose investors to extra risk. But all things considered, I think the REIT — which carries a large 8.8% forward dividend yield — is an impressive passive income stock.

In my view, investors looking for passive income should consider Supermarket Income and Grainger for their own portfolios.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco 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.

More on Investing Articles

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »

Investing Articles

At a 52-week low but Taylor Wimpey shares are forecast to rise 35% in a year and yield almost 9%!

Taylor Wimpey shares have had a rough ride but Harvey Jones says analyst forecasts are upbeat, while there is also…

Read more »