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

Actual property funding trusts (REITs) are sometimes recognized to supply engaging earnings funds to buyers. To take care of beneficial tax remedy, the trusts must pay out a excessive proportion of their income to shareholders. Nevertheless, once I noticed a REIT with an extremely excessive yield, I wished to see if it actually was sustainable or not.

Firm particulars

I’m speaking in regards to the Regional REIT (LSE:RGL). Because the title suggests, the property portfolio is primarily in regional UK centres, outdoors the M25 motorway. In case Londoners overlook, there’s a world outdoors of Zone 5!

One distinctive characteristic in regards to the REIT is that it holds a mixture of workplace, industrial, retail, and residential properties. Sometimes, different REITs would give attention to only one space of the market. But, like different firms within the sector, Regional REIT makes cash via long-term rental agreements. It is a key component that makes money move sturdy, which in the end ought to translate to creating the dividend streams predictable.

Please word that tax remedy is dependent upon the person circumstances of every consumer and could also be topic to alter in future. The content material on this article is offered for info functions solely. It isn’t meant to be, neither does it represent, any type of tax recommendation.

A beneficiant dividend yield

In the mean time, the yield stands at 9.45%. Over the previous yr, the share worth has fallen by 18%. That is one cause why the yield has risen. In spite of everything, the dividend yield is calculated from the dividend per share and the share worth. So if the inventory falls, it acts to push up the yield.

Though some may see this as a pink flag, I’d rapidly add that the dividend per share has additionally been growing. Simply two years in the past, the entire fee was 5.25p. It seems like the entire for 2025 is ready to complete at 10p. So there’s clearly development right here, which is essential.

The yield may be excessive, however within the newest half-year report from September, administration stated the dividend was absolutely lined. This implies the earnings paid is taken from earnings, with earnings alone ample to pay the dividend. This reveals that it’s sustainable and never stretching the corporate.

Wanting forward

The September replace offered a number of indicators that the dividend could possibly be sustainable. There may be sturdy lease exercise, with the agency not too long ago securing new lettings and lease renewals. For instance, it reported £1.6m of latest or renewed lease, beating their estimated rental values.

Additional, the workforce has a technique of promoting non-core property. This generates money that can be utilized to cut back debt or reinvest in higher-return properties.

One threat I do see is the continuing work on debt refinancing. A serious debt facility matures in August 2026, and if rates of interest stay excessive or financing situations tighten, refinancing could possibly be costly or tough.

Even with this concern, I don’t suppose the yield is just too good to be true. Because of this, I feel it’s an earnings inventory for buyers to think about as a part of a broader diversified portfolio.