With a dividend yield of almost 10%, is this REIT too good to be true?

Real estate investment trusts (REITs) are often known to offer attractive income payments to investors. To maintain favourable tax treatment, the trusts have to pay out a high proportion of their profits to shareholders. However, when I saw a REIT with an incredibly high yield, I wanted to see if it really was sustainable or not.

Company details

I’m talking about the Regional REIT (LSE:RGL). As the name suggests, the property portfolio is primarily in regional UK centres, outside the M25 motorway. In case Londoners forget, there is a world outside of Zone 5!

One unique feature about the REIT is that it holds a mix of office, industrial, retail, and residential properties. Typically, other REITs would focus on just one area of the market. Yet, like other companies in the sector, Regional REIT makes money through long-term rental agreements. This is a key element that makes cash flow strong, which ultimately should translate to making the dividend streams predictable.

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.

A generous dividend yield

At the moment, the yield stands at 9.45%. Over the past year, the share price has fallen by 18%. This is one reason why the yield has risen. After all, the dividend yield is calculated from the dividend per share and the share price. So if the stock falls, it acts to push up the yield.

Although some might see this as a red flag, I’d quickly add that the dividend per share has also been increasing. Just two years ago, the total payment was 5.25p. It looks like the total for 2025 is set to finish at 10p. So there’s clearly growth here, which is important.

The yield might be high, but in the latest half-year report from September, management said the dividend was fully covered. This means the income paid is taken from earnings, with earnings alone sufficient to pay the dividend. This shows that it’s sustainable and not stretching the company.

Looking ahead

The September update provided several signs that the dividend could be sustainable. There is strong lease activity, with the firm recently securing new lettings and lease renewals. For example, it reported £1.6m of new or renewed rent, beating their estimated rental values.

Further, the team has a process of selling non-core assets. This generates cash that can be used to reduce debt or reinvest in higher-return properties.

One risk I do see is the ongoing work on debt refinancing. A major debt facility matures in August 2026, and if interest rates remain high or financing conditions tighten, refinancing could be expensive or difficult.

Even with this concern, I don’t think the yield is too good to be true. As a result, I think it’s an income stock for investors to consider as part of a broader diversified portfolio.

The post With a dividend yield of almost 10%, is this REIT too good to be true? appeared first on The Motley Fool UK.

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Jon Smith 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.

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