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I reckon building a passive income stream via dividend paying stocks is certainly achievable. Real estate investment trusts (REITS) are property stocks designed to provide 90% of profits to shareholders, and therefore look attractive to me.
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I already own a few REITs as part of my holdings but I’ve got my eye on two more, Tritax Big Box (LSE: BBOX) and Supermarket Income REIT (SUPR).
For the purposes of this article, let’s say I have £2K to invest today. I could buy 1,956 shares in the two stocks. With £1,000, I could buy 641 Tritax shares at £1.56 per share. The remaining £1K would buy me 1,315 shares in Supermarket Income at 76p per share.
Owning these shares would offer me a combined dividend yield of 12.4%. This is more than three times the FTSE 100 average yield of 3.8%! However, it’s worth mentioning dividends are never guaranteed.
Let me break down the investment case for both stocks.
Tritax Big Box
Tritax invests in and funds the development of large logistics properties for retailers.
Macroeconomic volatility has hurt the property market in recent months, therefore many stocks have been held back. Tritax is no different. Over a 12-month period, the shares are up 3% from 153p at this time last year, to current levels of 156p.
Demand for logistics facilities has soared in recent years, mainly linked to the e-commerce and online shopping boom. This trend shows no signs of slowing, which means continued growth could be on the cards too. Tritax already has some excellent strategic partnerships with large retailers that will help support performance and payouts now, as well as potentially in the future. These names include Amazon and Ocado to mention a couple.
Due to a cost-of-living crisis impacting consumer spending, retailers may reconsider the outlay of any new logistics facilities for their offering, which could hurt Tritax’s performance and profit levels.
Overall, a solid business model, a dividend yield of 4.5%, and future growth potential make the stock a buy for me.
Supermarket Income REIT
The business specialises in properties for supermarket businesses. These can range from retail locations to warehousing and more.
Over a 12-month period, the shares are down 20%, from 96p at this time last year to current levels of 76p.
I reckon the firm has a sense of defensive ability, due to the fact groceries are essential. Plus, with the growing UK population, supermarkets will only need more locations and facilities to serve a growing nation.
Supermarket Income already has some impressive clients on its books, including Tesco, Aldi, Morrisons, and Sainsbury’s.
The biggest risk for the stock is the current high-interest environment we find ourselves in. Borrowing can be costlier, which could slow growth aspirations. Furthermore, paying down existing debt could be costlier too, potentially hurting payouts.
However, once volatility subsides, I reckon Supermarket Income shares should climb. At present, a forward dividend yield of 7.9%, growing to over 8% next year, looks well covered looking at its balance sheet, and is hard to ignore.