April 22, 2024
Investments

2 REITs I own for juicy returns yielding a combined 14.5%


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Real estate investment trusts (REITs) are excellent dividend paying stocks, in my view. This is because they must return 90% of profits to shareholders. However, it’s worth mentioning dividends are never guaranteed.

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.

Two stocks I currently own are Primary Health Properties (LSE: PHP) and Warehouse REIT (LSE: WHR).

Here’s why I bought them, and would consider buying more shares when I next can!

Primary Health Properties

As the name alludes to, Primary invests in properties for health related provisions, including GP surgeries, as an example.

The shares have struggled recently, mainly due to the malaise in the property market related to economic volatility. They’re down 17% over a 12-month period, from 110p at this time last year to current levels of 91p.

Despite short-term volatility, I believe the long-term outlook is positive. Primary’s choice of sector offers it defensive traits, in my view. This is because healthcare is a basic requirement for all. Plus, when you factor in the ageing and growing population of the UK, there could be some excellent growth opportunities to boost performance and returns ahead.

The final bullish point I’ll note about its operations is its ties with the NHS. These contracts for properties can offer it stable, long-term revenue streams for the business which should help support investor rewards and further growth.

From a bearish perspective, debt is something I’m wary of. Primary’s balance sheet shows it has a fair bit to contend with and this is costlier and trickier to pay down during times of high interest rates, like now. This could hurt payouts. Furthermore, with the property market struggling, growth could be harder to achieve, at least in the short to medium-term.

However, a dividend yield of 7% and the opportunity for long-term growth is hard to ignore for me.

Warehouse REIT

Similarly to Primary Health Properties, the name gives away the game. Warehouse invests in industrial and warehousing properties for logistics and e-commerce purposes. This sector has experienced huge growth in recent years.

Warehouse shares are also down over a 12-month period. At this time last year, they were trading for 110p, whereas they’re currently trading for 84p. This is a 22% drop.

As shopping habits have changed, firms like Warehouse have managed to leverage heightened demand into performance growth and investor rewards. Research shows this isn’t slowing down any time soon. As the digital revolution continues and online shopping numbers soar, businesses need logistics and warehouse properties to cope with increased demand, compared to traditional brick-and-mortar retail outlets.

The risk for Warehouse is the ongoing issues in the property market for growth purposes, similar to Primary. However, the issue I’m more concerned about is the low barriers of entry into the industry, which could prompt new competition with more cash to buy properties and win customers and contracts that could hurt Warehouse’s market share and performance. I’ll keep an eye on this front.

A dividend yield of 7.5% is nearly double the FTSE 100 average of 3.8%. I’m willing to strap in for the short-term volatility, and make the most of long-term rewards and payouts here.



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