While the rate of inflation may have fallen in the last few months as the pound has strengthened, the prospects for the UK economy remain precarious. With Brexit talks still having some way to go, the pound could easily weaken as the March 2019 deadline approaches. This could lift inflation higher and may mean that it becomes more difficult for investors to obtain a real income return.
With that in mind, here are two investment trusts which appear to offer strong income prospects. At the present time they yield over 4% apiece, with dividend growth having the potential to beat inflation.
Reporting on Monday was real estate investment trust (REIT) Supermarket Income REIT (LSE: SUPR). The company invests in supermarket assets in the UK, with its trading update for the quarter to 31 March generally upbeat.
During the period it was able to conclude two rent reviews with 3.9% increases. Since acquisition, its investment properties have recorded a rise in valuation of 4.5%. Since its assets have weighted average unexpired lease terms of 18 years, with no break options, they appear to offer a relatively low-risk income opportunity. Rent reviews are upward only and are linked to RPI, while a net asset value of 96p per share suggests that the stock may be undervalued at its current share price of 101p.
With a dividend yield of 5.4% and forecast earnings growth of 14% in the next financial year, Supermarket Income REIT appears to offer a solid income investing outlook. While not the most exciting of companies, for investors who are seeking relatively solid income returns it could prove to be an enticing dividend option for the long term.
Also offering income appeal within the REIT sector is Big Yellow Group (LSE: BYG). The storage specialist has reported a relatively consistent financial performance in the last five years, with its bottom line rising in four of the five years. This suggests that it offers a lower-risk outlook than many of its index peers, with its 8% forecast earnings growth rate over the next two years having a high chance of being met.
With Big Yellow Group having a dividend yield of around 4%, it’s likely to continue offering income over the foreseeable future. Certainly, its price-to-earnings (P/E) ratio of 25 suggests that it may struggle to deliver an upward re-rating. However, if market volatility continues then it may be able to easily justify its P/E ratio since it could offer a resilient financial performance in future.
With Big Yellow Group seeming to have a solid strategy which has been able to deliver growth over a sustained period, its risk/reward ratio seems to be attractive. At a time when investor sentiment is difficult to gauge, it could be a worthwhile stock to buy and hold for the long run.
Peter Stephens owns shares of Big Yellow Group. The Motley Fool UK has no position in any of the shares mentioned. 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.