Investing in real estate investment trusts (REITs) is a great way to get a small, potentially lifetime income.
Why? Because cash flow tends to resist inflation and shareholders can enjoy larger payouts, leading to higher returns, even more so in 2026 when REITs trade at huge discounts.
That’s why I’ve already added two of these income stocks to my portfolio… and one of them can be sem. on the brink of ascension!
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it paid a dividend of 5.8%.
Let’s start with a boring but reliable REIT in my income portfolio: LondonMetric Property (LSE:LMP).
This business is a diversified commercial property owner – one of the largest FTSE 100. It has a £7.4bn real estate portfolio generating £421m of annual rent from some of Britain’s biggest businesses. This includes Amazon, TescoPremier Inn, Aldi, Marks and Spencerand FedEx, among many others.
As its tenants almost always include large enterprises, the firm’s cash flow is very reliable, with rent collection standing at a solid 99.5%, occupancy at 98.1%, and an average lease term of 16.4 years.
Combined, this translates to impressive long-term income and visibility of benefits. And management has used this profit continuously to reward shareholders with ever-increasing dividends, which translates into 10 years of steady dividend growth.
The company has been using its size to acquire smaller distressed REITs in recent years at a discounted price. But it has taken on debt to do so, leading to significant strategic risk. After all, if the acquired properties fail to meet performance expectations, the company saddles the balance sheet with an additional value-destroying measure.
However, its unique record speaks volumes. And with a 5.8% yield, it’s a risk I think is worth considering.
Is dividend income surging?
The second REIT in my income portfolio is Greencoat UK Wind (LSE:UK). In recent years, investor sentiment regarding the recovery has weakened due to higher interest rates and reductions in government subsidies. As such, the shares trade at a 28% discount to their net asset value, paying a whopping 10.8% yield.
This is where things get interesting.
Due to the complex nature of energy pricing in the UK, natural gas almost always sets the price at which power generators can sell their electricity.
As war breaks out in Iran, natural gas prices have risen. And unless the tragic conflict ends soon, UK energy prices are on course to follow.
War is bad news for humanity in general and energy prices are a problem for families in particular. But it’s good news for the Greencoat.
With fixed costs of energy production, price increases open the door to large increases in profit margins. And we saw this play out for the first time in 2022, when Greencoat made a power profit more than doubledfrom £257m to £560m!
Although exciting, it is important to note that these spirits may be temporary. If the war with Iran eases, natural gas prices could fall.
In addition, even if energy prices remain high for a long time, another cycle of taxes paid on electricity generators from the government seems possible – especially given the current state of public finances.
However, with Greencoat shares still trading at a steep discount, the market doesn’t seem to be valuing this potential income. And while this REIT certainly comes with a higher level of risk, it may be worth thinking about.
