Should I buy 29,761 shares in this FTSE 250 dividend REIT for £1,000 a year in passive income?

Stephen Wright’s wondering whether it’s a good idea to buy shares in a FTSE 250 REIT with a highly reliable tenant base and a 9.2% dividend yield.

| 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.

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.

High bond yields make this a good time to consider buying dividend shares. And there are a few on my list at the moment. 

One is Assura (LSE:AGR), the FTSE 250 real estate investment trust (REIT) with a lot of features that could make it a reliable source of passive income for investors.

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.

Should you invest £1,000 in Airbnb right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Airbnb made the list?

See the 6 stocks

The equation

Over the last 12 months, Assura shares have fallen by around 23% and the share price has hit 36.26p as a result. With the firm set to distribute 3.36p per share this year, the implied dividend yield‘s 9.26%.

Created with Highcharts 11.4.3Assura Plc PriceZoom1M3M6MYTD1Y5Y10YALL15 Jan 202015 Jan 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024www.fool.co.uk

That means the amount someone would need to invest in order to generate £1,000 a year in dividends is £11,025. That’s £10,791 for 29,761 shares, plus £234 in stamp duty.

A falling share price and a high yield can be a sign investors are concerned about the firm’s ability to keep paying dividends. But if they’re wrong, this could be a great passive income opportunity.

A 9.26% yield is eye-catching with government bonds offering above 5%. So I think it’s well worth looking at the stock to see whether the returns actually might be more durable than the market realises. 

The business

Assura owns and leases a portfolio of 608 GP surgeries and healthcare properties, the vast majority located in the UK. As a result, the firm gets almost all of its rental income from the NHS. 

From a passive income perspective, this could be a very good thing. An organisation backed by the UK government is unlikely to run out of money, making the risk of rent defaults relatively low. 

It does however, mean the risk of a change in government policy is quite significant. But for the time being, things seem to be moving in the right direction in terms of UK healthcare policy. 

Growth typically comes from developing and expanding existing properties rather than acquiring new ones. But the company did acquire a portfolio of hospitals last year at a cost of £500m.

Risks and rewards

As is often the case with REITs, the biggest risks with Assura come from its balance sheet. It has a lot of debt and the average time to expiry is less than five years. 

REITs have limited options when it comes to managing their debts. Being required to return 90% of their taxable income to shareholders means they can’t use it to repay outstanding loans. 

But Assura’s making moves to bring down its debt levels by selling off some of the properties in its portfolio. However, this obviously means less in the way of rental income.

A company with reliable rental income should be able to manage a higher debt load than one with more volatile tenants. But I think this is the biggest risk for investors to pay attention to. 

Should I buy?

I currently own shares in Primary Health Properties in my portfolio, which is a very similar business. Adding Assura could help maintain a similar income stream while reducing company-specific risks.

On that basis, buying 29,761 shares to look for a £1,000 a year second income doesn’t seem like a bad idea. It’s definitely one I’m considering for my Stocks and Shares ISA.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Stephen Wright has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Primary Health Properties 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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

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 »