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Tax rules mean real estate investment trusts (REITs) must return 90% of their relevant profit to shareholders in dividends each year. This means many are offering double-digit yields.
And with interest rates expected to fall in 2026, REITs could be well placed to increase their payouts further. Here are two interesting opportunities I believe are worth considering.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Super-duper
With seven years of consecutive dividend growth, Supermarket Income REIT (LSE:SUPR) has a strong track record in rewarding shareholders. Based on amounts paid over the past year, the stock’s yielding 7.3%. However, this has to be set against a 20% fall in its share price since January 2021.
But I think the supermarket property sector’s a good one to invest in. Although shopping habits have changed, customers using click-and-collect services still have to visit a store. And home deliveries are picked from the shelves of physical stores.
With blue-chip tenants in the UK and France, including Tesco, Sainsbury’s and Carrefour, the risk of a customer going bust is unlikely. It now claims to have exposure to investment grade tenants of 75%. And with a WAULT (Weighted Average Unexpired Lease Term) of 12 years, it has good visibility of its future income. Both these factors should help it continue to grow its dividend although, of course, there are no guarantees.
Also, the trust’s had a busy November and December buying more stores. This should help it increase future earnings and help it raise its impressive dividend further.
Applying logic
Tritax Big Box REIT has also been raising its payout. In cash terms, over the past 12 months, it’s paid shareholders 18.3% more than it did for its 2020 financial year. It’s now yielding 4.9%.
The trust claims to have the largest logistics investment and land development portfolio in the country. Its 100+ units (or boxes as they’re known) are occupied by some blue-chip tenants including Amazon and Ikea.
The stock trades at a 14% discount to its net asset value. But in a sign that investors are warming to the trust, the gap’s closed significantly over the past six months.
However, sentiment could change if interest rates stay higher for longer. That’s because, in common with most REITs, the trust generally borrows to buy properties. Not only would higher finance costs adversely affect its earnings but it’s likely to limit its ability to borrow more to fund further expansion. Also, the UK commercial property sector can be cyclical.
In its favour, it’s developing a large data centre near Heathrow to capitalise on growth in the artificial intelligence (AI) sector. And e-commerce is also booming. In my opinion, with exposure to both of these — as well as its attractive dividend — Tritax Bigbox has lots going for it.
Final thought
According to the London Stock Exchange: “REITs are a great way of accessing the risks and rewards of holding property assets without having to own them directly”.
I agree. Fortunately, there are over 40 to choose from, covering a range of sectors and types of property, many of which are offering high yields and attractive passive income opportunities.
