This passive income stock could be the real winner from Pfizer’s deal with the US government

I feel actual property funding trusts (REITs) are among the finest passive revenue investments round. And one specifically stands out to me after Pfizer’s current take care of the US authorities.

Alexandra Actual Property Equities (NYSE:ARE) is a REIT that leases lab area to pharmaceutical corporations. It’s been hit by the current downturn within the sector, however I feel it’s nicely value a glance proper now.

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Pfizer’s deal

The US authorities has been hostile to pharmaceutical corporations. So to keep away from the specter of a 100% tariff on imported medicine, Pfizer has agreed to cut back its costs and spend money on US manufacturing.

The response from the inventory market has been constructive. And one of many shares that obtained the most important enhance is Danaher, which provides tools throughout the trade.

Against this, shares in Alexandria Actual Property are down barely. And there’s positively a danger {that a} large funding in US manufacturing may create further competitors.

I feel although, that the agency stands to learn from the pharmaceutical sector as an entire being in a stronger place. So I’m wanting on the 6.5% dividend yield as a possible alternative.

Rental revenue

The draw back to Pfizer’s deal is that it means decrease promoting costs for pharmaceutical corporations. However Alexandria Actual Property’s largely shielded from this.  From the agency’s perspective, what issues is that it may entice sufficient tenants to occupy its properties and that they’re ready to pay their rents. That’s just about it. 

A great illustration of that is the state of affairs with Moderna. The agency has struggled because the finish of the pandemic, however this hasn’t been an issue for Alexandria Actual Property. 

Lease assortment metrics have been constantly excessive, regardless of Moderna being one of many agency’s largest tenants. And this has resulted in constant dividend progress for traders.

The place are we now?

Alexandria Actual Property at present has 90% of its properties occupied, which is under its long-term common. That’s why traders will need to concentrate on the specter of additional provide coming on-line. 

The common lease has round 7.5 years left, which isn’t that lengthy. However among the many high 20 tenants – which account for over a 3rd of its complete rental revenue – the determine is nearer to 10 years.

Earlier this yr, the agency needed to subject debt at 5.5% to interchange maturing bonds that had a 3.45% rate of interest. That’s not splendid, however the path ahead appears a lot clearer on this entrance. 

Solely 9% of the corporate’s loans are set to run out earlier than 2027 and the prospect of falling rates of interest ought to assist with this. So the present place appears way more steady than it did in January.

A dividend alternative?

Alexandria Actual Property has targeted on producing dependable rental revenue from high-quality tenants. And that’s a technique that has labored nicely for passive revenue traders. 

Whereas Pfizer’s take care of the US authorities may create further competitors, I feel it must also stabliise the pharmaceutical sector. That’s why I view it as a constructive for the corporate.

Over the long run, I anticipate the inventory could possibly be an excellent supply of passive revenue. And the 6.5% dividend yield is unusually excessive and price contemplating severely as a doubtlessly enticing entry level.