I think the FTSE 250 index is often overlooked when it comes to quality dividend-paying stocks.
Two real estate investment trusts (REITs) that look attractive to me are Tritax Eurobox (LSE: EBOX) and Supermarket Income REIT (LSE: SUPR).
Before I dive into the investment case for each, it’s worth remembering that REITs can be good passive income stocks. This is because in exchange for tax breaks, they must return 90% of profits to shareholders.
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.
Let me explain why I reckon investors should consider buying some shares in each.
Tritax Eurobox
The business focuses on real estate and warehousing facilities across Europe. It’s been a tricky time for property stocks as inflation and higher interest rates have hurt net asset values (NAVs) and performance. However, the long-term picture looks good, if you ask me.
Tritax shares are down 26% over a 12-month period from 64p at this time last year, to current levels of 47p. This could offer a better entry point for potential investors.
I reckon growth is on the cards because demand is outstripping supply for warehousing properties in Europe. Remember that the e-commerce boom has changed the way consumers shop. Nearly all businesses need some form of warehousing and storage space to cater to this.
It’s hard to ignore a dividend yield of just over 8.5%. However, it’s worth remembering that dividends are never guaranteed.
One bearish aspect that’s worth mentioning is that of heightened competition. Due to the low penetration levels in Europe, there are many firms vying to hoover up the current soaring demand. Low barriers to entry into the industry make it fair game for anyone able to capture this burgeoning demand.
Supermarket Income REIT
The clue as to what the company does is pretty much given away in the name. The firm supplies quality properties to supermarket businesses for e-commerce, fulfilment, warehousing, and more.
Supermarket shares are down 15% over a 12-month period from 85p at this time last year, to current levels of 72p.
The biggest bullish traits for me are Supermarket’s defensive ability, as well as existing relationships. From a defensive view, everyone needs to eat, and this should keep supermarket firms in business. In turn, they need warehousing and other properties to continue their operations.
Looking at existing operations, the business already has excellent relationships with some of the biggest names in the UK. These include Sainsbury’s, Morrisons, and Tesco. Furthermore, the average lease for these properties across its current customer base is close to 13 years. This offers Supermarket Income a level of stability when it comes to revenue and earnings.
Finally, a forward dividend yield of 8.2% is very attractive.
Like Tritax, there are risks that could create issues and hurt payouts. Growth is definitely harder when interest rates are higher, as borrowing costs are increased. Taking on debt is usually one of the ways REITs aim to grow. This new cash funds the acquisition of new properties, in order to rent them out.
The post 2 FTSE 250 stocks to consider buying for powerful passive income appeared first on The Motley Fool UK.
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Sumayya Mansoor 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.
