While investing in the property sector through buy-to-let has been a well-travelled route to generating an income among investors for a number of years, buying listed property-related stocks could now be a better idea.
With tax changes to buy-to-let, as well as a more difficult mortgage environment, buying real estate investment trusts (REITs) could be a shrewd move. They offer far greater diversity than a buy-to-let, can be tax-efficient when purchased in a Stocks and Shares ISA, and may deliver impressive income returns.
With that in mind, here are two FTSE 250 REITs that have a solid track record of dividend growth, and that appear to offer good value for money at the present time.
Office and studio space provider Workspace (LSE: WKP) released an impressive set of final results on Wednesday. The company’s net rental income increased by 16%, with trading profit after interest rising by 19% to £72.4m. This enabled it to increase its total dividends per share by 20% to 32.87p.
Over the last five years, the company has increased its dividends at an annualised rate of over 25%. In the current year it is expected to post a further rise in shareholder payouts of around 14%, which would put it on a yield of 4.1%. This suggests that as well as offering an impressive income return and good value for money today, the company could also offer a rising share price as investor demand increases for a stock that has consistently-high dividend growth.
Therefore, with Workspace continuing to have a positive outlook in terms of rising demand for its offering, despite the political uncertainty faced in the UK, it could mean a superior risk/reward opportunity when compared to buy-to-let.
While the UK economy may face an uncertain period at the present time, London’s West End has historically been more resilient than many other locations. This could mean that West End-focused REIT Shaftesbury (LSE: SHB) outperforms the wider property market. Indeed, its recent updates have shown that the company is seeing continued strong demand for its units, as well as rising footfall that suggests it has a bright long-term future.
Although the company has increased its dividends at an annualised rate of 6.5% during the last four years, it has a dividend yield of just 2% at the present time. While this may not appear to be highly appealing to income-seeking investors, the stock has the potential to generate further above-inflation dividend growth over the long run.
With Shaftesbury currently trading on a price-to-book (P/B) ratio of 0.8, it seems to offer a wide margin of safety. When combined with its resilience to economic uncertainty and its capacity to raise dividends, this could mean that it offers an impressive total return over the long run that makes it more attractive than investing in buy-to-let.
Peter Stephens has no position in any of the shares mentioned. 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.