The pandemic has greatly influenced the world that we live in. It has been particularly damaging in the retail sector, where shops across the world were forced to close. Even with the majority of shops now open again, they are still mostly seeing a reduced number of customers. But the opposite can be said for online shopping. In fact, the pandemic is estimated to generate an additional £4.5bn in UK online sales and it is thought that a quarter of Brits will make the transition to online shopping permanent. Investors can profit from this trend. I’d therefore buy this FTSE 250 stock.
Links with e-commerce
Tritax Big Box (LSE: BBOX) is a real estate investment trust which specialises in huge warehouses. These are then let out to major retailers. But what is especially positive about this stock is its list of customers. In terms of income, the top customers include Amazon, Morrisons, Howdens, Co-op, and Tesco. Other customers include the high-flying Ocado and Unilever. Such a large list of high-profile customers should help increase its resilience in this time of turmoil. A 96% rent collection rate in the first quarter is testament to this resilience.
The company’s customers are also on long-term leases (which usually exceed 12 years in length). This should increase stability and ensure steady revenues in the near future. With upward-only rent reviews, and the recent surge in online shopping, I can also see high levels of growth for this stock over the next few years.
A FTSE 250 income stock
For income seekers, Tritax offers a fairly large dividend, which yields around 4.6%. With a sustainable and growing income stream, the company also states that it targets a progressive dividend. For example, the dividend saw a 2.2% increase from 2019 to 2020, and there is certainly room for further growth. The only issue I have with the dividend is that it has a dividend cover of only 1. This means that all earnings are essentially paid out as dividends, and they are not being reinvested into the company for further growth. This isn’t a major issue (especially as earnings should grow) but it should be considered, nonetheless.
As well as a current stable income, the stock has plenty of room to grow. In fact, it recently announced a new development that will be the size of 30 football pitches. Market insiders believe that the customer is Amazon. This is a sign of its recent success and its potential growth. The firm has also managed to acquire approximately one asset every month since its listing, and this has established it as a market leader.
All in all, I think that Tritax Big Box is a great defensive stock, well-positioned to profit from the surge in online shopping. With a price-to-earnings ratio of over 17, the FTSE 250 stock is not cheap, yet I’d happily pay slightly more for such a reliable company.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Unilever. The Motley Fool UK has recommended Howden Joinery Group, Tesco, and Tritax Big Box REIT and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.