The idea of earning passive income from AIM stocks might seem a little odd. After all, a substantial portion of the junior market is made up of growth-focused companies. What’s more, small-caps tend not to be the sort of shares that allow one to sit back, relax and collect cash. After a bit of digging, however, I’ve found three I’d buy.

Ienergizer

Operating on six continents, Guernsey-based Ienergizer (LSE: IBPO) provides outsourcing services to companies in fields including banking, healthcare and gaming. This diversification should make earnings — and therefore dividends — pretty secure. Analysts have the stock returning 15p in the current financial year. That gives a juicy yield of 5%. 

Other things I like about IBPO include the high returns on capital and reasonable valuation (17 times earnings). The fact that founder Annil Aggarwal holds a massive amount of shares should also ensure that his interests are aligned with those of retail investors like me.

As with many AIM stocks however, IBPO could prove to be a volatile holding. The ‘free float’ — the amount of stock available to trade on the market — is very small at just 17%. This could mean it takes only a few buys or sells to make the share price motor or sink respectively.

Urban Logistics REIT

Urban Logistics REIT (LSE: SHED) is a second AIM stock I’d buy. Based on the explosion in demand for warehouse space, I reckon this is a pretty bulletproof option for dividends. 

The company has 76 assets on its books and an occupancy rate of 93%. Tenants include DHL, Amazon and Hermes. Margins for this kind of work tend to be very good indeed. 

Another attraction is the valuation. SHED may be a lot smaller than peers such as Tritax Big Box, but it’s also cheaper to buy. The stock currently trades at 21 times earnings. A 4.9% yield is also far more than I’d get from the FTSE 250 constituent. 

I can’t see too many downsides to me adding SHED to my portfolio. That said, a slowdown in the UK economic recovery for whatever reason could still impact sentiment.

Then again, a move away to the main market is looking increasingly likely. This increase in the liquidity of its stock should attract the attention of more investors and help push the shares higher. 

FRP Advisory

A final AIM stock I’d buy would be FRP Advisory (LSE: FRP). The company specialises in corporate finance, debt and restructuring. In its own words, FRP gets “under the skin of businesses in complex and difficult situations”. Thanks to Covid-19, I don’t think there’ll be a shortage of clients once government support fizzles out.

Trading is already going well. Back in July, FRP reported a 25% jump in revenue to £79m in its last full year. As one would hope, the firm’s balance sheet also looks robust with a net cash position.

That said, it’s worth mentioning that the dividends are the lowest of the three mentioned. A 4.37p per share distribution equates to a 3.7% yield. That’s only slightly more than I’d get from buying a FTSE 100 tracker.

So, while I like the defensive nature of this business, I’d need to question whether it’s worth the hassle if truly passive income were my primary objective. It helps that FRP is the cheapest AIM stock mentioned here (16 times earnings).

The post 3 AIM stocks I’d buy for passive income appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Tritax Big Box REIT and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.

The same case can be made for Tritax’s smaller rival Urban Logistics REIT (LSE: SHED) too. The AIM-quoted company enjoyed record take-up of its space in the 12 months to March, beating the prior all-time high printed just a year earlier. And rental income almost doubled in the period, reflecting that aforementioned demand surge as well as a chronic shortage of so-called big box facilities in the UK.

Annual dividends at Urban Logistics swelled 12% last year, and more meaty growth is anticipated for fiscal 2020, meaning a chunky 5.8% yield. And it’s not hard to foresee chubby payout hikes long into the future as profits likely go from strength to strength.

Prime target

Target Healthcare REIT (LSE: THRL) is another big-yielding property share I’d happily stash in my ISA today and hold there for years to come.

This business provides care homes the length and breadth of the country, and because of steady growth in the UK’s elderly population, I’m tipping earnings here to keep flourishing as well. Predictions from the Office for National Statistics suggests the number of citizens aged 85 years or over is set to balloon to 3.6m by 2019, up from 1.5m five years ago, certainly bolsters my confidence.

What’s more, Target has both the appetite and financial strength to remain active on the acquisition front to capitalise on this vast structural opportunity. In the last few months alone it’s shelled out close to £15m on a couple of care homes in Nottingham and Merseyside.

Its very bright growth outlook means City brokers predict more dividend hikes at Target in the near-term, leaving another mighty 5.8% yield for the current year (to June 2020). Buy it today for handsome income flows for years to come, I say.

Be bowled over

The renaissance of ten-pin bowling in the UK makes Ten  Entertainment Group (LSE: TEG) another dividend great to buy today.

It doesn’t matter that Britons’ spending power is coming under sustained pressure. A night out at the bowling alley is a relatively cheap, fun and unique experience, and this is why people are still flocking to their nearest venue in record numbers. This was evident in Ten Entertainment’s interims this month in which it advised of a 7.4% uplift in like-for-like sales in the period to June.

And just as we are seeing at Target, Ten Entertainment is putting its robust balance sheet at work to build future growth, the small-cap adding new centres in Southport and Falkirk to its estate portfolio in recent months.

Right now, the bowling behemoth carries a large 5% dividend yield for 2019 and a dirt-cheap corresponding P/E ratio of 11.7 times. I consider it to be a white-hot buy for ISA investors at the current share price.

The post 3 dividend stocks I’d buy for my ISA and hold for 10 years 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 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.

Welcome, I thought, to the modern world of supply chain logistics, which has been pumped up by the growing trend of internet retailing to proportions that I’d liken to a bodybuilder on steroids. Wouldn’t it be interesting, I mused, to find a way of focusing an investment on these upcoming modern-day mega-structures?

A specialist sub-sector

Sometime later, I stumbled across Urban Logistics REIT (LSE: SHED). The firm focuses on a specialist sub-sector of the UK real estate market by investing in industrial and logistics properties. The key investment thesis behind the company is that e-commerce demands new infrastructure and modern distribution networks capable of handling the escalating demand for transporting, storing and delivering goods.

So Urban Logistics  operates in a similar area as the owners of those massive buildings I’d seen and the firm is responding to a similar theme, but its operations are not an exact fit with my investing vision.

The website explains that the supply of urban logistics assets in the UK is constrained “by a variety of factors,” which together with the shift towards online commerce creates “heightened demand” for “well-located smaller-sized” warehouses, and that’s the area that the firm focuses on. Although some of its properties are still quite impressive in their proportions.

Encouraging results and a positive outlook

The firm started out in April 2016 and says on its website it is building a portfolio of “high-quality” assets with “strong” income and capital growth potential. The assets it owns attract a diverse range of tenants from various industries. As with many property firms, Urban Logistics is not content to merely buy and hold properties indefinitely and instead aims to buy and sell real estate at opportune times to enhance shareholder returns.

I find today’s full-year results report to be encouraging. Earnings per share rose almost 43% and the net asset value lifted by 13% to a smidgeon below 138p per share. Today’s share price close to 129p suggests the firm remains conservatively valued by the stock market. During the period, the company acquired seven logistics properties, spending £48m and disposed of £11.3m worth of property, saying it achieved an average total property return on the sold properties of just over 25%.

Meanwhile, the firm’s portfolio of property is “fully occupied,” and the directors see upside potential in ongoing rent reviews, which have been increasing average rents by a little under 40%. Chief executive Richard Moffitt said in the report: “Urban Logistics remain real estate’s top performing sub-sector.” And chairman Nigel Rich explained in the narrative that the fundamentals of the market “remain attractive and we are confident of continuing to deliver consistent returns for our shareholders.”

Top management appears to be united in its enthusiasm, and I reckon shares in Urban Logistics REIT are attractive.

The post Why I’d invest in this exciting property sub-sector with this on-trend REIT appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Kevin Godbold has no position in any share 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.