However, things have changed. House price inflation has stalled, and rising tax and costs mean net rental yields are materially lower than in earlier times.

Today, I’d prefer to buy shares in stock market property companies where I see not only higher potential returns, but also the opportunity to diversify across different sub-sectors of the property market.

Diversification

Arguably, buy-to-let remains economically attractive for large-scale professional operators, as opposed to small amateur landlords. If you believe this is the case, you may want to consider shares in Residential Secure Income and PRS REIT. Both companies specialise in this area.

For diversification into other areas, Primary Health Properties (LSE: PHP), which has increased its dividend every year for over two decades, and NewRiver REIT (LSE: NRR), which currently sports a yield of 11.1%, are two stocks I’d be happy to buy. Let me tell you more about them.

Reliable core holding

Primary Health’s record of annual dividend increases since its flotation in 1996 reflects its focus on a non-cyclical market. It invests in modern primary health facilities in the UK and Republic of Ireland. Its properties are let on long-term leases, backed by a secure underlying covenant where the majority of rental income is funded directly or indirectly by a government body.

Last week, the company raised an additional £100m from investors, having seen an increase in the number of opportunities for funding new developments. At the same time, it reiterated its intention “to maintain its strategy of paying a progressive dividend that is covered by earnings in each financial year.”

In July’s interim results, management had signalled a dividend for the full year of 5.6p per share, a 3.7% increase on the 2018 payout. At a current share price of 132.6p, this would give a yield of 4.2%. It’s not the highest around, but I think it’s one of the most secure, providing a reliable core holding for a stock portfolio.

High-yield pick

NewRiver owns 33 community shopping centres, 23 conveniently-located retail parks and over 650 community pubs across the UK. Retail is a bit of a struggling sector, but NewRiver, which was founded in 2009, hand-picked its assets with a focus on the faster-growing and resilient sub-sectors of grocery, convenience stores, value clothing, health & beauty and discounters.

The company paid a dividend of 21.6p per share last year. At the current share price of 194.4p, this gives a yield of 11.1%. Now, when a yield is this high, it indicates the market is pricing in a risk of a reduced dividend in future. NewRiver’s payout last year was only 84% covered by underlying funds from operations (UFFO), a measure of cash profits.

However, management is confident about its strategies for increasing profits, and of “first re-establishing full cover and then growing the dividend in the future in line with UFFO.” On this front, I think news last week of property disposals at a blended net initial yield of 5.4%, with the proceeds recycled into acquisitions with a 9% yield, is highly encouraging.

Finally, the stock market currently offers attractive dividends across a range of other sectors. This means investors have the opportunity to further diversify their streams of passive income.

The post Forget buy-to-let! I’d go for a passive income from these property stocks appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.

One of the most prominent on my radar is FTSE 250 property group NewRiver REIT (LSE: NRR). Here, I’ll explain why I think the company’s business is more attractive than some of its peers, how it meets my criteria of compelling value, and two other significant factors that inform my positive view on the stock.

Mid-cap status maintained

Earlier this week, NewRiver escaped being demoted from the FTSE 250 index by the skin of its teeth. It actually featured on the FTSE’s indicative list of demotees published on Monday. However, its shares rose enough to get its head back above water by the all-important close of market on Tuesday, and it avoided plunging into the FTSE SmallCap index.

The reason its shares rose on Tuesday was a timely and positive update on acquisitions and disposals. It also announced it’s holding a Capital Markets Day for analysts and institutional investors on 26 September.

Positioned for growth and resilience

NewRiver specialises in buying, managing, developing and recycling convenience-led, community-focused retail and leisure assets throughout the UK. Its £1.3bn portfolio consists of 33 community shopping centres, 23 conveniently located retail parks and over 650 community pubs.

Management has deliberately focused on the fastest growing and most sustainable sub-sectors of the UK retail market, with grocery, convenience stores, value clothing, health & beauty and discounters forming the core of its retail portfolio. It’s deliberately limited exposure to structurally challenged sub-sectors such as department stores, mid-market fashion and casual dining.

I like how NewRiver’s positioned itself, not least because I think its retail centres should be more resilient than some of its peers in an economic downturn, as should its pubs, which traditionally offer an affordable treat when consumer incomes are squeezed.

Woodford and shorts

I reckon NewRiver’s share price has suffered from the general aversion to property in this time of Brexit fears, but also because of the two other significant factors I mentioned earlier.

Back in April, Neil Woodford had a 29% stake in NewRiver. However, with redemptions at his Equity Income fund spiralling dangerously out of control, he was forced to sell liquid stocks. By mid-July his NewRiver holding went below 5% and I suspect he’s exited completely by now.

At the same time, short positions in NewRiver (hedge funds betting on its share price falling) peaked at over 8% in June, but are currently down to less than 5%.

Acing it

The depression of NewRiver’s share price has left it sporting what I think of as the four aces of value investing. It’s trading at a deep discount to its book value (35%), on a cheap forecast earnings multiple (8.3x), with a high dividend yield (12.7%), and has a strong balance sheet, including fully unsecured borrowings with long maturity dates (August 2023 and March 2028).

I think NewRiver’s positioning in value retail and pubs, the clearing of the Woodford overhang, the reduced short positions, and my four aces of value, suggest now could be an opportune time to take an interest in the stock for the long term. I rate it a ‘buy’.

The post A FTSE 250 dividend stock yielding 13% I predict will pay you for the long term appeared first on The Twelfth Magpie.

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G A Chester 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.

In another sign of the challenging conditions for British shoppers, numbers from the Office for National Statistics showed total sales in the UK slumping 0.5% month-on-month in May, worsening from the 0.1% reverse recorded in the prior month.

This worsening landscape is reflected in the shocking share price decline at retail and leisure property investment specialist NewRiver since mid-April, and it’s hard to see how conditions will improve any time soon as the Brexit saga rolls on and on and keeps consumers’s wallets and purses firmly sealed.

Stuck in a sales storm

The FTSE 250 firm bemoaned “the significant headwinds facing the UK retail sector” back in May’s full-year update, a release in which it advised that a 6.4% property valuation decline forced EPRA net asset values to fall to 261p per share in the year to March 2019 from 292p in the prior period.

These weren’t the only scary numbers knocking about back then either. Retail occupancy at the firm fell 1.3% year-on-year to 95.2%, while occupancy rates across its pubs fell by 110 basis points to 97.9%. And NewRiver saw footfall across its shopping centres drop 2.4% on a like-for-like basis, a performance that the business pointed out was nonetheless 0.2% better than the industry average.

As well as those aforementioned cyclical issues, NewRiver is being smacked by the hurried migration of consumers moving from bricks-and-mortars stores to conduct their shopping needs online. I concede that its focus on low-cost and convenience retailers makes it less immune to this structural challenge than some other real estate investment trusts, though this clearly still represents a thorn in the company’s side.

All things considered, I’m not moved in the slightest by NewRiver’s low forward P/E ratio of 11.1 times, a valuation I consider a fair reflection of its risky profits outlook. It’s quite possible the retail specialist’s problems will stretch long into the future and for this reason I’m happy to ignore its giant 11.7% corresponding dividend yield too.

A Footsie hero

In fact, had I any holdings here I’d be very happy to sell up and to buy Halma (LSE: HLMA) with those funds instead.

Even though it carries a forward dividend yield of 0.9%, its investment case is far stronger than that of NewRiver, I believe, and that’s why its share price has risen by almost 50% since the turn of 2019.

Time and again I’ve lauded this FTSE 100 stock’s progressive dividend policy which has been running for decades now, and the exceptional profits opportunities afforded by its ambitious acquisition-led growth strategy. So you can imagine my reaction to news that Halma last week bought Australasian fire detection specialist Ampac Group for a cool £74m.

I don’t care about its expensive prospective P/E multiple of 36.4 times. In my opinion Halma’s great growth record and terrific long-term profits outlook means that it’s worth every penny.

The post Why I’d sell this FTSE 250 ~12% yielder to buy this FTSE 100 1% yield appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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.