Dividend stocks are usually meant to be dependable, rather than dazzling. But a 9% yield means that NewRiver REIT (LSE:NRR) might turn out to be both.
The company leases and manages a portfolio of retail properties. And besides a high yield, there are a lot of reasons why the stock is worth a closer look at today’s prices.
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Portfolio
NewRiver REIT’s portfolio is focused on retail parks and shopping centres. And the average overall occupancy rate is around 96%, which has increased from 95.3% last September.
The company also consistently collects around 97% of the rent that it’s due. That’s a strong result and it’s partly due to having a diversified base of high-quality tenants.
On average, leases have just under six years until their first break and just over 10 years until they expire. That’s ok, without being spectacular, but it’s worth noting this has been increasing recently.
While UK retailers have been faltering recently, NewRiver is somewhat protected from this. It doesn’t need them to do well, it just needs them to keep paying their rent obligations.
Another encouraging sign is that the company has managed to increase some of its rents recently. That’s the result of supply in the industry being limited, which is another long-term advantage.
As a result of all of this, I don’t think there’s likely to be a problem with cash coming in for some time. The other thing investors need to look at, though, is cash going out.
Debt
REITs are required to distribute 90% of their taxable income to investors. But that means they can’t use the cash they generate for growth and they often have high debt levels as a result.
Even by these standards, NewRiver REIT has a relatively high loan-to-value ratio at the moment. And there’s a major debt refinancing on the way in 2028.
This is the major risk with the stock at the moment. If the firm has to refinance at higher rates – which seems likely – higher interest costs could cut into profits and put pressure on that dividend.
Predicting where interest rates will be in 2028 is not at all straightforward. But it seems likely that they’ll be higher than they were 10 years ago, when the £300m bond was initially issued.
Once the debt is refinanced (at whatever rate) it should stay fixed for some time. And the company should be able to keep increasing rents to eventually offset the higher costs.
A short-term hit wouldn’t be ideal and this is worth paying attention to. But investors should also focus on the firm’s trajectory after 2028, which I think could be much more positive.
Keeping things simple
Making things more complicated than they need to be is a big investing mistake. NewRiver REIT isn’t without risks, but at least it’s relatively easy to see what these might be.
On the other side of the equation, there are big potential rewards on offer. I expect the company to generate a 9% return for investors at least until 2028 and potentially over the longer term.
It’s never 100% clear what the best stocks to buy at any time are – if it was, investing would be a lot easier than it is. But I think NewRiver REIT is well worth considering for dividend investors.
