A great thing about being a UK investor is the abundance of listed companies paying out passive income in the form of dividends.
Tritax Big Box (LSE: BBOX) is one example. The FTSE 250-listed real estate investment trust (REIT) owns and manages warehouses for some of the most recognisable retailers around. These include Tesco, M&S, and Amazon.
That might sound very dull. But it proved to be anything but a few years ago.
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Boring but beautiful
As one might expect, this company hit a purple patch during the Covid-19 pandemic. The jump in online shopping and demand for logistics space caused the share price to rocket from just over 100p — when then-PM Boris Johnson first told us to get behind our doors — to 250p by the end of 2021.
That’s a 150% gain in less than two years. Oh, and the firm paid dividends over this period too.
Speaking of which…
Solid first half
Based on today’s (7 August) set of half-year numbers, I think Tritax’s passive income credentials look as strong as ever.
Contracted annual rent soared 34.7% higher to £303.4m over the period. A good dollop of this could be attributed to rent reviews and the acquisition of UK Commercial Property REIT. The latter also boosted the total value of its portfolio by 27.2% to £6.4bn.
The most significant detail for me, however, was the 4.3% hike to the half-year dividend to 3.65p. This is just the sort of thing any income investor wants to see!
The consensus among analysts is that the company will dish out 7.71p per share in total for FY24. At today’s share price, this becomes a forecast dividend yield of 4.8%. That’s more than the current 3.3% yield I’d get from a fund that tracked the FTSE 250.
Is it worth the extra risk?
It goes without saying that no income stream is guaranteed. This is the case here, even though its customers will be signed up to long lets.
Second, the stock isn’t cheap to buy. A price-to-earnings (P/E) ratio of 19 could spell trouble if inflation makes a comeback later this year. Should investors get skittish, there’s a chance that shares will sink again.
More growth ahead
However, one needs to balance all this with the long-term outlook. I think it would be a brave soul to bet that the boom in demand for logistics solutions is over. Frankly, any retailer without a thriving e-commerce division is asking for trouble.
Meeting that demand will require significant up-front investment by management. But the first cut to interest rates at the start of the month was a positive development.
Separately, Tritax has been “actively progressing potential opportunities” to expand its offering into power and data centres. That could become another catalyst for earnings growth if anything comes from it!
As a further way of mitigating risk, I’d spread my money around different stocks in different sectors. Diversification remains the only ‘free lunch’ going.
Green shoots
After a tricky couple of years, I think the tide might be turning for firms like Tritax.
If I had the cash and passive income were a priority, I’d be happy to buy today and hold for the long term.
