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The FTSE 100 and the FTSE 250 have some terrific dividend shares, especially in the real estate sector. But investors around the world are starting to take notice and opportunities are starting to slip away.
Within the last month, Assura and Care REIT have both accepted takeover bids from US enterprises. That gives investors looking for passive income fewer opportunities to choose from.
Acquisitions
One of the big investing themes of 2024 was UK shares being acquired by US companies. And it’s been continuing this year with a recent focus on real estate investment trusts (REITs).
A month ago, shares in Assura were trading with a dividend yield above 9%. But that’s changed since private equity group KKR offered to buy the company outright.
The agreed price is around 31% above where the stock was trading when the initial bid was received. It could be worse for investors, but it’s not a long-term passive income opportunity anymore.
Something similar is true of Care REIT. The share price jumped 33% earlier this week when it announced that it had accepted a takeover bid from US-listed CareTrust REIT.
The stock had been trading with a dividend yield of around 8.5% and I had the stock on my radar as a potential income investment. That, however, isn’t the case any longer.
With bigger investors taking note of high yields and low valuations, UK investors are finding fewer opportunities. But I think there are still some that are worth considering.
Supermarkets
Supermarket Income REIT (LSE:SUPR) is a FTSE 250 real estate investment trust (REIT) that comes with a much more attractive starting yield. At today’s prices, it amounts to an 8.25% return.
The firm owns and leases grocery stores to the likes of Tesco and Sainsbury and returns the rental income to investors. Distributing its cash like this can mean that growth prospects are limited.
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At today’s prices though, shareholders might not care. An 8.5% yield might mean the company only has to maintain its dividend to be a good investment.
Despite this, the company is looking to expand its portfolio both in the UK and France. That might seem like a positive thing, but I think it also looks risky.
It’s worth noting that Supermarket Income REIT’s share count has almost quadrupled over the last five years. The company’s cash flows have increased enough to offset this – but only just.
This is something investors will need to keep an eye on and weigh up. But it’s worth noting that an 8.5% dividend yield does leave something of a margin of safety in the investment.
Get there before they’re gone?
I think UK investors – especially ones looking for passive income – should look at the REIT sector. Even with some recent acquisitions, I still think there are opportunities that are worth considering.
The UK stock market has a reputation for low valuations. That’s not ideal for companies thinking about going public, but it’s great from the perspective of potential buyers.
That’s why I’m focusing my efforts on this side of the Atlantic. And it looks like some significant organisations are starting to see value here as well.