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I think he FTSE 250 The index is often overlooked when it comes to quality dividend-paying stocks.
Two real estate investment trusts (REITs) that I find attractive are Eurobox Tritax (LSE:EBOX) and Supermarket Income REIT (LSE: DEL).
Before delving into the investment arguments for each, it's worth remembering that REITs can be good passive income stocks. This is because, in exchange for tax breaks, they must return 90% of the profits to shareholders.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice.
Let me explain why I think investors should consider buying a few shares of each.
Eurobox Tritax
The business focuses on real estate and storage facilities throughout Europe. It's been a tough time for property stocks as inflation and higher interest rates have hurt net asset values (NAVs) and performance. However, the long-term outlook looks good, in my opinion.
Tritax shares are down 26% in a 12-month period from 64p this time last year to current levels of 47p. This could offer a better entry point for potential investors.
I think growth is at play because demand is outstripping supply for storage properties in Europe. Remember that the rise of e-commerce has changed the way consumers shop. Almost every business needs some type of storage and storage space to cater for this.
A dividend yield of just over 8.5% is hard to ignore. However, it's worth remembering that dividends are never guaranteed.
One bearish aspect worth mentioning is increased competition. Due to low levels of penetration in Europe, there are many companies competing to absorb today's growing demand. The low barriers to entry into the industry make it an easy target for anyone who can capture this growing demand.
Supermarket Income REIT
The clue as to what the company does is practically given in the name. The company supplies quality properties to supermarket companies for e-commerce, fulfillment, warehousing and more.
Supermarket shares are down 15% in a 12-month period from 85p this time last year to current levels of 72p.
For me, the biggest bullish traits are Supermarket's defensive capabilities as well as existing relationships. From a defensive point of view, everyone needs to eat, and this should keep supermarket companies in business. In turn, they need warehouses and other properties to continue their operations.
In terms of existing operations, the company already has excellent relationships with some of the UK's biggest names. These include Sainsbury'sMorrison and tesco. Additionally, the average lease for these properties among their current customer base is close to 13 years. This offers Supermarket Income a level of stability when it comes to revenue and profits.
Finally, a forward dividend yield of 8.2% is very attractive.
Like Tritax, there are risks that could create problems and hurt payments. Growth is definitely more difficult when interest rates are higher, as borrowing costs increase. Taking on debt is typically one of the ways REITs aim to grow. This new cash finances the acquisition of new properties for rental.
