A real estate investment trust (REIT) is an example of an excellent dividend stock, in my opinion. One REIT I am considering adding to my holdings is Regional REIT Ltd (LSE:RGL). Here’s why.
What are REITs?
A real estate investment trust is a business with a property portfolio setup to yield income from these properties. These can be many forms of properties such as warehouses, offices, shopping malls, and many others. REITs offer investors access to a property portfolio without having to purchase and manage the property. REITs are designed to pay the majority of profit as dividends which is why they are identified by many as a good dividend stock option.
Regional REIT’s portfolio is mainly commercial property and is wholly based in the UK. It is made up of office buildings and industrial units in regional centres of the UK outside of the M25 motorway. As at June 2021, Regional has 151 properties, 1,214 individual units, and 847 tenants.
As I write, Regional shares are trading for 88p. At this time last year, the shares were trading for 76p, which is a 15% return over a 12-month period.
Risks involved
Regional could fall foul of changing working habits as well as soaring inflation and rising costs. Firstly, the pandemic has led to many firms offering home working options. This has continued as restrictions have eased. Regional owns many office buildings. Demand could decrease, affecting performance and making it a less attractive dividend stock.
With rising costs due to soaring inflation, economic uncertainty could be bad news for REITs like Regional. These issues can affect occupancy, but more importantly, rent collection from existing tenants. This was a widespread issue when the pandemic struck and the market crashed. This would affect performance and payouts.
A dividend stock I’d buy
Regional currently sports an enticing dividend yield of just over 7%. To provide some perspective, the FTSE 250 average yield is just under 2% and the FTSE 100 average yield is 3%-4%.
One of the reasons I feel Regional is a good option for my holdings is its track record of performance, as well as track record of finding excellent properties and making deals to benefit the company. For example, last year it sold a portfolio of units for £45m, which was 18% higher than what it purchased the units for. There is no guarantee that Regional could repeat such successes but I like to see that management has an eye for growth and profitable deals.
Regional has also performed well in recent years. I do understand that past performance is not a guarantee of the future, however. I can see revenue and gross profit increased year on year for three years prior to the pandemic-affected year of 2020. Full-year 2021 results are due soon and I am confident pre-pandemic levels could be achieved.
Overall I believe Regional is an excellent dividend stock with a good track record, and an enticing average-beating yield. For this reason, I’d add the shares to my holdings to make a passive income.
Jabran Khan 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.
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