2 first-class REITs and investment trusts to consider for a long-term passive income!
UK share investors have dozens of top investment trusts — including property-focused real estate investment trusts (REITs) — to choose from today. Here are two I think merit serious attention from investors seeking a large and reliable dividend income.
Euro star
The Schroder European Real Estate Investment Trust (LSE:SERE) lets out offices, retail spaces and other properties in major European cities. This doesn’t make it immune to risk — indeed, Germany’s struggling economy remains a threat. But its multi-country footprint helps reduce geographical risk over the long term.
In fact, this investment trust has proved extremely resilient despite recent economic pressures. Property occupancy was a robust 95% in the six months to March. And rent collection was 100%. This reflects in large part its focus on quality properties in economic hotspots such as Berlin, Paris and Hamburg.
This robustness is also thanks to its determination to capture locations with strong demographic, technological and infrastructure dynamics. It’s strategy of targeting what it calls ‘winning cities’ is also one I believe sets it up well for long-term earnings growth.
As I’ve explained, REITs like this aren’t without their risks. But sector rules mean they can still be an excellent source of dividend income over time.
These investment trusts don’t pay a penny in corporation tax. In exchange, they’re obligated to pay a minimum of 90% of annual rental earnings out in the form of dividends. It doesn’t guarantee a large and/or growing dividend year after year. But it prevents the company’s management from retaining too much income, making dividend growth more likely.
Today the Schroder European Real Estate Investment Trust carries a 7.6% forward dividend yield. That towers above the FTSE 100 average of 3.2%, to put that into perspective.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Green option
Renewable energy stocks are under growing threat from changing political thinking around climate change. In late August, Danish energy company Ãrsted‘s shares slumped to all-time lows, for instance, after the White House halted work on a new US wind farm project.
Yet despite such dangers, I don’t think investors should consider avoiding the sector. There are still great opportunities out there, such as NextEnergy Solar Fund (LSE:NESF), which has roughly 100 solar projects on its books. By focusing on European countries like the UK, Italy, Spain and Portugal, it operates in regions where political attitudes towards green power are far more supportive.
In Britain, for instance, the government is looking to supercharge solar capacity from 18GW today, to at least 45-47GW by 2030. The UK is this trust’s core market, and home to roughly 85% of its total projects.
From an income perspective, I like the fact that NextEnergy operates in a highly defensive sector. Electricity demand remains broadly constant across the economic cycle. And so the trust has enjoyed the reliable cash flows to help it regularly raise annual dividends.
They’ve risen every year since NextEnergy was created in 2014. And payouts are tipped to grow again this year, resulting in an enormous 12% dividend yield. I think it’s another great long-term dividend option to consider.
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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.
