This FTSE 250 stock currently offers investors a 6.3% dividend yield. Despite predominantly being a growth index, the FTSE 250’s home to some terrific income stocks. And this business, in particular, has a lot of awesome traits that income investors love to see.
Of course, no company’s perfect. And this firm’s quite a few hurdles to overcome. Nevertheless, if it succeeds, investors may be looking at a lucrative buying opportunity!
Dividends from Europe
Tritax EuroBox (LSE:EBOX) is a diversified warehouse landlord. It specialises in supporting the European logistics industry with properties scattered across the continent. With the rise of e-commerce and increasingly complex supply chains, the firm’s at the heart of many leading brands and businesses, including Amazon, Wayfair, and Samsung.
Since these warehouses are critical to client operations, the lease durations tend to be long. In fact, as of March, the weighted average lease duration of current tenants is 9.5 years. That’s proven to be a powerful advantage in the recent economic downturn as rental income continued to flow despite slower consumer spending.
Needless to say, this recurring revenue model lends itself nicely to a reliable dividend. And it’s how management’s sucessfully hiked shareholder payouts for three years in a row – or 10 years if we ignore the blip caused by the pandemic.
If investors wanted to earn an extra £1,000 each year, they’d need to buy 23,420 shares at the current 6.3% yield. In terms of money, that’s a £15,293 investment. And while that’s a considerable sum, steadily injecting a small amount of capital each month could reach this threshold within a few years, thanks to compounding.
What’s the catch?
Having an extra grand coming in each year’s obviously an exciting thought. But Tritax EuroBox isn’t a guaranteed source of passive income. The FTSE 250 company’s had a few challenges in recent years due to the rising interest rates.
Interest rates have started to come back down. But the ongoing pressure has forced management to sell off some of its properties to shore up the balance sheet. To its credit, the price of these deals has been in line with book value despite the downcycle in the European real estate sector.
Management has a few more locations on the chopping block as it aims to bring the firm’s loan-to-value ratio down to around 40% by the end of 2024. That’s definitely good news for long-term dividend sustainability. However, it also means that rental income’s going to suffer.
Snapping up shares today could be a terrific bargain. After all, the company is currently trading at a 20% discount to its net asset value. And this gap is likely to start closing as more rate cuts are announced. But, it’s unclear what the state of rental income will be once all the disposals are complete. As such, it’s possible that dividends may suffer, putting a question mark on the impressive 6.3% yield.
All things considered, the company’s in my ‘wait and see’ category. But for investors comfortable with a bit more risk, Tritax EuroBox may be worth doing further research.
This post was originally published on Motley Fool
