Here’s how this growth stock could boost my passive income!

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I’m constantly looking for quality dividend paying stocks that would boost my passive income stream. I own a number of REITs that do this already. Another that could fit the bill for my portfolio is Civitas Social Housing (LSE:CSH). Here’s why I decided to buy the shares for my holdings.

Social housing

Civitas is a real estate investment trust that focuses on providing social housing throughout the UK. To provide further context, REITs are businesses set up specifically to provide returns to shareholders from income-yielding property. Some others I own focus on warehousing or industrial property, or retail and office spaces. I like these stocks because as a rule, they must return 90% of profits to investors.

Civitas shares are trading for 64p at time of writing. A year ago, the stock was trading for 84p, which is a 23% decline over a 12-month period. I’m not concerned by this share price drop as many UK shares have fallen due to recent economic volatility. It just means that the shares are cheaper for me to buy right now.

Why I decided to buy the shares

First things first, I believe Civitas will only continue growing as a business, due to the fact that demand for housing is outstripping supply here in the UK. House builders are looking to make the most of this. With this in mind, Civitas should be able to leverage this demand into new homes, and in turn, make more rental income. This should then result in more dividends for investors.

Looking at returns then, I think Civitas’ current dividend yield of over 8% is enticing. Comparing this level to the current FTSE 100 average of 3%-4% fills me with confidence. I am conscious that dividends are never guaranteed and can be cancelled at any time, however.

Next, due to Civitas shares falling, they look better value for money now too. They currently trade on a price-to-earnings ratio of 10. There is a general rule that a ratio of under 15 could represent value for money.

Finally, I can see Civitas has a good track record of performance in recent years. For example, it has grown revenue year on year for the past four years. I am conscious that past performance is not a guarantee of the future, however.

Risks and conclusion

Despite my decision to buy Civitas shares, I must be wary of issues that could hinder any passive income I hope to make. Due to current economic volatility, a cost-of-living crisis has emerged. With this in mind, rent collection may become tougher for Civitas. If this does happen, it could impact its balance sheet and level of returns. I believe this is a shorter-term issue, however.

Overall I’ve decided to add Civitas shares to my holdings due to the passive income opportunity, growing market, and share price, as well as the company’s track record to date. I will be adding the shares to my holdings imminently and expect them to boost my portfolio for the long term.

The post Here’s how this growth stock could boost my passive income! appeared first on The Motley Fool UK.

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Jabran Khan 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.