At the moment, the average FTSE 250 dividend yield‘s 3.45%. This isn’t too shabby, but with active stock picking, investors can find shares with dividend forecasts even more lucrative. Here’s one real estate investment trust (REIT) I’ve spotted with a promising outlook.
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Company details
I’m referring to the Supermarket Income REIT (LSE:SUPR). It owns grocery stores and supermarket properties across the UK. Over the past year the share price is up 11%, with a current dividend yield of 7.72%.
The business model’s pretty straightforward which makes the dividend sustainable, in my view. The company earns money from its supermarket tenants who pay stable, predictable rents. Most leases are indexed to inflation, meaning rents automatically rise each year. Also, the business usually leases these properties to retailers on long-term contracts going out over a decade.
At the same time, it should benefit from capital appreciation over time. This is especially true in areas where land for logistics or retail is scarce and grocery demand is steady.
With regards to the dividend, it has a strong track record of paying out income each quarter. The payment typically rises once a year, and the forecast for the coming years indicates this trend will continue.
Dividend details
Over the past year, the total dividend paid per share was 6.135p. Using the current share price of 79.5p gives the yield of 7.72%. For the year ahead, the total’s expected to rise to 6.18p, with 2027 potentially yielding 6.36p. We don’t know where the share price will be in 2027, but if I assume it’s the same as it currently is, this would offer a dividend yield of 8%. Compared to the average FTSE 250 yield, this is very attractive.
These forecasts are subjective, so the actual yield may be higher or lower. Further, the average yield for the index could also change, making the difference to the REIT more or less attractive. Even so, it’s a large difference, which could result in a large monetary change for investors.
I think the income’s sustainable, with supermarket properties essential infrastructure for grocery logistics. This means demand from operators remains strong and vacancies are rare.
One risk is company debt levels. Even though the loan-to-value percentage on the portfolio isn’t super high (around 30%-40%), it still exposes the business to interest rates changes. If they stay higher for longer in the UK, the interest costs could eat into profits.
Overall, I think the REIT’s an option for income investors with a long-term vision to consider. When added to an existing diversified portfolio, it can provide a nice yield enhancement to the overall pot.
