With an astonishing 7.5% yield, is this ‘defensive’ REIT worth buying today?

With the UK stock market turning red at the moment, plenty of investors are looking at real estate investment trusts (REIT) for sanctuary. But are they really the ‘safe haven’ that some believe them to be? Or is it a case of buyer beware?

Let’s consider both sides of the argument by looking at one particular high-yielding example that today (11 March) has released its results for the six months ended 31 December 2025.

Bricks and mortar

Supermarket Income REIT (LSE:SUPR), which owns a portfolio of freehold and leasehold grocery stores in the UK and France valued at £2.06bn, has paid dividends of 6.15p a share over the past 12 months. With a current share price of 82.1p, it means the stock’s yielding an incredible 7.5%.

But things get better. Its payout’s been increased every year since it listed in July 2017. This impressive record is partly due to the fact that — in common with all REITs — it has to return at least 90% of its rental profit to shareholders each year by way of dividends.

However, the trust still has to be profitable for it to be in a position to reward shareholders. After all, 90% of nothing is nil.

Importantly, the trust’s able to target paying a progressive dividend because its income is secured via long-term inflation-linked leases. And because of the calibre of its tenants – Tesco and Sainsbury’s to name just two – it has full occupancy and no bad debts.

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Adapt and survive

I particularly like Supermarket Income because large supermarkets have evolved over the years to become the hub of the grocery market. With more people shopping online, many started to believe that the industry would transition towards centralised distribution centres. However, large grocers have successfully adapted to this challenge.

Whether someone wants to visit a store, have their groceries delivered, or go and collect what they’ve bought online, the omnichannel supermarket remains essential. I don’t think it’s a coincidence that Ocado Group’s now planning to close some of its customer fulfilment centres.

In my opinion, these qualities make Supermarket Income a great defensive stock. Both the REIT business model — and the grocery sector — can be attractive during times of market volatility. That’s why I have shares in the REIT and why I think others could consider adding some to their own portfolios.

No regrets

However, some are wary of REITs because they, generally speaking, tend to have large borrowings. That’s because most use debt to expand. At 31 December 2025, Supermarket Income’s balance sheet disclosed borrowings of £980m. This gives it a loan-to-value (LTV) of 43%, taking into account some 2026 transactions. Higher interest rates will lead to increased borrowing costs and reduced earnings.

Others investors don’t like the cyclical nature of the commercial property market, particularly in the UK. If supermarket real estate values were to fall, the trust’s net asset value would tumble and its LTV rise. This could limit its future borrowing capacity.

But I still rate Supermarket Income. Compared to the same period a year ago, its latest results show an 11% increase in rental income and a 0.1% improvement in portfolio yield. The group’s targeting a 2% increase in its annual dividend from its next financial year onwards. That’s why I’m happy with my choice of REIT.

The post With an astonishing 7.5% yield, is this ‘defensive’ REIT worth buying today? appeared first on The Motley Fool UK.

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James Beard has positions in J Sainsbury Plc and Supermarket Income REIT Plc. The Motley Fool UK has recommended J Sainsbury Plc and Tesco 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.

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