I own a number of real estate investment trust (REIT) stocks as part of my holdings. This is to boost my passive income stream as well as access the property market through stocks without having to buy and manage property myself. One in particular I like the look of is Civitas Social Housing (LSE:CSH). Here’s why.
Social housing REIT
Civitas specialises in providing social housing for people across the UK. As a quick reminder around REITs, they are businesses set up specifically to provide consistent returns to shareholders through income-yielding property.
There are many different types out there which focus on different types of property such as social housing, office space, healthcare properties, and industrial properties to mention a few. One thing they all have in common is all REITs must return 90% of profits to shareholders. This is one of the biggest attractions for me as a passive income seeker.
So what’s happening with Civitas shares currently? Well, as I write, they’re trading for 82p. At this time last year, the stock was trading for 117p, which is a 29% decline over a 12-month period. Many stocks have pulled back in recent months due to macroeconomic and geopolitical factors.
Risks to note
It must be noted that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time. An example of when this could occur for a REIT is poor performance, or alternatively a one-off extreme event such as a financial crash or pandemic.
One of the biggest risks REITs face is that of rent collection. If for any reason it cannot collect rent, it cannot provide returns to shareholders. The current cost-of-living crisis, which has been caused by macroeconomic headwinds in recent months, could play a part here.
The bull case
So to the positives then. As a passive income seeker, I instantly look for the dividend yield on offer. Civitas shares offer a yield of over 6% currently. This is higher than the FTSE 100 average of 3%-4%.
Next, performance underpins dividends, so what is Civitas’ track record recently? I am aware that past performance is not a guarantee of the future, but looking back, I can see revenue has increased year on year for the past four years.
Looking at the Civitas share price, the shares look decent value for money at current levels on a price-to-earnings ratio of just over 11. The general consensus is that a ratio of below 15 indicates value for money.
Finally, the current demand for housing in the UK outstripping supply is a major positive for me. A REIT like Civitas is in a prime position to grow its portfolio of properties and capitalise on increasing demand for years to come. Social housing is seen as one of the most stable parts of the property market.
Overall, I like the look of Civitas shares and would add them to my holdings to boost my passive income stream. I also expect demand for social housing to help boost its growth. This REIT will fit in nicely with the others in my portfolio.
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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.