I think real estate investment trusts (REITs) are some of the best stocks out there to build a passive income.
Property stocks like these don’t usually provide the biggest dividend yields. Cyclical shares usually offer much better dividends (pound for pound) when times are good and profits balloon.
But investing for long-term income is about much more than looking for big yields today. I want shares that will pay decent dividends at all points of the economic cycle. I also desire companies that can regularly grow shareholder payouts to offset the impact of inflation on my wealth.
This is why I think REITs are top stocks to buy. Firstly, they have to pay at least 90% of yearly profits to shareholders in the form of dividends. Secondly, the value of real estate tends to rise solidly over time, giving these shares the chance to grow profits strongly.
And finally, these property stocks tend to lock down their tenants on long-term leases. This gives them reliable rental income and therefore the means to pay dividends regardless of broader economic conditions.
Age of Empire
Empiric Student Property (LSE: ESP) is one London-listed REIT I’d consider buying if I had some spare cash to invest. This stock concentrates on the student accommodation market, a sector that’s suffering from extreme supply shortages.
In fact, current shortages drove revenue occupancy at the firm to record highs of 98% for the 2022/23 academic year. Like-for-like rents at the REIT rose a chunky 5.1% year on year too. This offset the impact of rising costs on its profits.
The UK student accommodation market is rock solid. Domestic student numbers are strong and British universities have been attractive destinations for overseas graduates for decades. This provides earnings at the likes of Empiric with an added layer of protection.
Having said that, a change to immigration rules could put a significant dent in Empiric’s profits outlook. The Times reported last week that the government is considering banning foreign students from studying at non-elite universities.
Rock-bottom share price
But as things stand, I still find Empiric’s investment case highly appealing. And despite recent share price gains it remains especially cheap too.
City analysts think earnings here will rise 104% this year. They predict a 28% year-on-year rise in 2023 as well. Consequently the REIT trades on forward price-to-earnings growth (PEG) ratios of 0.3 and 0.7 for these two years.
Any reading below 1 suggests a stock is undervalued.
Impressive dividend growth
This bright profits outlook means Empiric Student Property is tipped to rapidly grow the dividend over the next two years.
Last year’s 2.5p per share reward is expected to rise to 2.6p in 2022 and then to increase to 3.6p in 2023. This pushes a handy 2.9% dividend yield for this year to a fatty 4% next year.
And I expect dividends here to keep growing over the long term as the business expands and profits balloon. Empiric encouragingly praised its “strong pipeline of potential acquisitions and development opportunities” in August.
The post A dirt-cheap REIT I’d buy for healthy lifelong passive income! appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
This REIT could be one of the best dividend stocks to buy!
No savings at 37? I’d buy cheap UK shares and aim to retire rich
Here are all 12 stocks I bought in my Stocks and Shares ISA in 2022
What are the best stocks to buy in December?
How I’d use £5 each day to build passive income streams for life
Royston Wild 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.