Should I buy this REIT to add to the others that pay me juicy dividends?

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As part of a diversified stock portfolio, I own shares in a number of real estate investment trusts (REITs). This gives me access to the property market without having to buy and manage properties myself. I’ve always wanted to increase my holdings, so I wanted to see if Big Yellow Group REIT (LSE:BYG) could be one to increase my holdings. Let’s take a closer look.

self-storage REIT

As a quick reminder, REITs are investment trusts designed to make money off of income-generating properties. As a rule, this type of investment trust must return 90% of the profits to shareholders. This is an attractive prospect for me as a passive income seeker.

As a quick introduction, Big Yellow Group is a REIT that specializes in self-contained storage solutions. In fact, it is now recognized as one of the largest companies of its kind in the UK and has 103 locations across the UK.

So what happened to Big Yellow’s stock right now? Well, as I write, they are trading for 1.413p. At this time last year, the stock was trading 5% higher, for 1.476p.

Risks to watch out for

Despite the great growth story, Big Yellow Group REITs are now operating in a very intense and saturated market. The rise of e-commerce as well as the demand for storage solutions in general have made many businesses vying for customers and contracts for the same from businesses. If any of its competitors can gain an edge in the Big Yellow Group, its performance and returns could be negatively affected.

Further, I noticed that after the stock market slump in March, Big Yellow stocks were once again edging closer to their all-time highs. This is something I’m always wary of due to the fact that negative news or trades can send stocks crashing. This in turn can affect my investment if I add stocks to my portfolio.

Bull case and verdict

So let’s look at some of the positives. I would like to learn more about the standalone storage market and the demand for such services as well. There are a number of self-contained storage companies operating as REITs. I found the UK Self-Retention Association Annual Industry Report for 2022 made for positive reading. Some of the main headlines that I got were the fact that the occupancy rate increased compared to 2021. Furthermore, rental rates have also increased and operators have lowered discounts due to increasing demand. Finally, the industry’s annual turnover has increased by almost 5% which equates to almost £1 billion. Big Yellow is in a prime position to benefit from continued demand and this will improve performance and returns.

Let’s look at some fundamentals later. I’ve noticed that Big Yellow’s stock looks good value at the moment with a price-to-earnings ratio of only 4. Additionally, it will increase my passive income stream offering a dividend yield of 3%. I am aware that dividends are never guaranteed, however.

Overall I like the look of the REIT Big Yellow Group stock and will add it to my holdings. Fundamentals are currently interesting. Furthermore, it appears that the self-storage market is an emerging market that could support future growth and returns as well.



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