2 REITs I own for a lifetime of passive income!
Investing in real estate investment trusts (REITs) is a fantastic way to earn a chunky, potentially life-long passive income.
Why? Because cash flows are often inflation resistant and shareholders can enjoy enormous payouts, leading to higher yields, even more so in 2026 when REITs are trading at large discounts.
Thatâs why Iâve already added two of these passive income stocks to my portfolio⦠and one of them could be on the verge of skyrocketing!
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A tasty 5.8% dividend yield
Letâs start with the boring-but-dependable REIT in my income portfolio: LondonMetric Property (LSE:LMP).
This business is a diversified commercial landlord â one of the largest in the FTSE 100. It has a £7.4bn real estate portfolio generating a £421m annual rent roll from some of the biggest enterprises in Britain. This includes Amazon, Tesco, Premier Inn, Aldi, Marks and Spencer, and FedEx, among many others.
With its tenants almost entirely consisting of large-scale businesses, the firmâs cash flows are exceptionally reliable, with rent collection standing at a rock solid 99.5%, occupancy at 98.1%, and the average duration of its leases sitting at 16.4 years.
Combined, this translates into impressive long-term revenue and earnings visibility. And management has leveraged this advantage to continuously reward shareholders with ever increasing dividends, translating into 10 years of continuous payout hikes.
The company has been leveraging its size to acquire smaller distressed REITs in recent years at a discounted price. But itâs taken on debt to do so, resulting in notable strategic risk. After all, if acquired properties fail to live up to performance expectations, the company’s saddling the balance sheet with additional value-destroying leverage.
Nevertheless, its exceptional track record speaks volumes. And with a 5.8% yield, itâs a risk I think is worth considering.
An incoming dividend surge?
The second REIT in my income portfolio is Greencoat UK Wind (LSE:UKW). In recent years, investor sentiment surrounding renewables has plummeted on the back of higher interest rates and cuts in government subsidies. As such, the shares trade at a chunky 28% discount to net asset value, paying an enormous 10.8% dividend yield.
Hereâs where things get interesting.
Due to the complex energy pricing mechanisms in the UK, natural gas almost always sets the price at which energy generators can sell their electricity.
With war breaking out in Iran, natural gas prices have surged. And unless the tragic conflict ends swiftly, UK energy prices are on track to follow.
The war is bad news for humanity in general and energy prices are an issue for households specifically. But itâs fantastic news for Greencoat.
With fixed energy production costs, price spikes open the door to enormous profit margin expansion. And weâve seen this play out first hand in 2022, where Greencoatâs energy profits more than doubled, from £257m to £560m!
While exciting, itâs important to recognise that this windfall may only be temporary. If hostilities with Iran de-escalate, natural gas prices could reverse.
Whatâs more, even if energy prices stay elevated for longer, another round of windfall taxes on energy generators from the government seems quite likely â especially given the current state of public finances.
Nevertheless, with Greencoat shares still trading at an enormous discount, the market doesn’t appear to have priced in this incoming revenue catalyst. And while this REIT certainly comes with a higher level of risk, it once again might be worth thinking about.
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- 11% already â and this high-yield share has just raised its dividend again!
Zaven Boyrazian has positions in Greencoat Uk Wind Plc and LondonMetric Property Plc. The Motley Fool UK has recommended Greencoat Uk Wind Plc and LondonMetric Property Plc. 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.
