For long-term investors, the goal of generating a second income is more than just a bonus – it’s a safety net. Whether it’s for retirement, travel, or covering unexpected costs, a sustainable income stream can provide true peace of mind.
To that end, I’m always scanning the UK market for high-quality, dividend-paying shares to add to my portfolio. Lately, one area in particular has caught my attention: FTSE 250 real estate investment trusts (REITs). These property-focused companies offer consistent income potential and the added benefit of asset-backed stability.
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As interest rates stabilise or fall, financing for property development is likely to become more affordable, encouraging expansion. The FTSE 250 typically hosts domestically-focused companies such as specialist REITs, which are better positioned to capitalise on these trends.
Here are three such stocks to consider as part of a reliable second income over the next decade.
British Land
With a market-cap of £3.86bn, British Land (LSE: BLND) is the largest REIT on the FTSE 250 and a significant player in the UK property market. In fact, its enterprise value (EV) of £6.5bn is equivalent to some FTSE 100 constituents, such as Diploma and St James’s Place.
British Land’s 5.9% dividend yield, coupled with a low payout ratio of 40%, makes it a compelling income pick. This low ratio suggests the firm has enough earnings to weather downturns and invest in growth – key traits I look for in an income stock.
Risk-wise, it’s exposed to the broader commercial property market, which could suffer if interest rates remain high or demand for office space declines. But for now, its scale and discipline make it a cornerstone of my second income strategy.
Primary Health Properties
Primary Health Properties (LSE: PHP) is a specialist REIT with a £1.38bn market-cap, focused on leasing properties to NHS organisations and other healthcare providers. It’s a niche business with a reliable client base, helping it grow by 7.28% over the past year.
Its 6.8% dividend yield is one of the highest among REITs. However, this level of income comes with a caveat: the payout isn’t well covered by earnings. Moreover, it trades at a high price-to-earnings (P/E) ratio of 33.4, which may limit near-term growth and raise some concerns around valuation.
Still, the healthcare property sector tends to be more resilient in economic downturns. This helps balance the risk for long-term investors like me.
PRS REIT
If there’s one REIT that looks like an emerging income star to consider, it’s the PRS REIT (LSE: PRSR). With a focus on the private rental sector, it has seen its market-cap climb 50% in the past year to £630m.
Its dividend yield is the lowest of the three at 3.57%, but what stands out is the earnings coverage – over five times the payout. The trust also trades at a P/E ratio of just 5.7, which suggests it could be significantly undervalued relative to its earnings potential.
The main risk here is scale. As a smaller REIT, this firm is more sensitive to changes in tenant demand and regional property trends. But with the UK rental market remaining tight, I believe the long-term outlook’s favourable.
