2 dividend investment trusts that look set to crush the FTSE 100
While interest rate rises are expected in the coming months, dividend stocks are still likely to prove popular among investors. Monetary policy tightening is due to take place at an extremely slow pace due to the risks the UK economy faces from Brexit. There also seems to be less need for a higher interest rates now that inflation has dropped back in recent months.
As such, stocks that could offer strong income returns over the long run may prove popular with yield-hungry investors. With that in mind, here are two real estate investment trusts (REITs) that could deliver high returns.
Wednesday saw student accommodation specialist Empiric(LSE: ESP) deliver a solid trading update. The company continues to deliver on its financial and operational improvements, with bookings for the 2018/19 academic year growing strongly. They are currently at 57% versus 45% at the same time of the previous year, with the company on target to meet its goal of 97% occupancy for the 2018/19 academic year.
The company has also been able to improve its operating margin. It is delivering on its cost savings goals and is on track to reduce administration expenses by £10m in the 2018 financial year. This would represent a fall of 26% from the prior year and could lead to improving financial performance over the medium term.
With a dividend yield of around 6%, Empiric appears to offer a strong income outlook. While there may be companies that can offer a faster pace of dividend growth, the resilient nature of its business model, plus its ongoing self-help measures, mean that it could be a sound income play for the long run.
Operating within the same sector is Unite Group(LSE: UTG). The UK's leading provider of affordable housing for students and keyworkers has delivered a stunning rate of dividend growth in recent years. For the period 2013-17, dividends per share increased by around 47% per year. This puts the stock on a dividend yield of around 3.5% at the present time, which remains significantly above the rate of inflation.
Looking ahead, further dividend growth could be on offer. Unite Group is expected to generate earnings growth of 13% per annum over the next two years. This is forecast to catalyse its dividend so that it rises by almost 20% per annum during the same time period. As such, a rising yield could be on offer for investors at a time when interest rates could remain relatively low.
Since demand for student property is expected to be relatively resilient even if Brexit causes difficulties for the wider economy, the risk/reward ratio offered by Unite Group could be highly attractive. As such, buying it now for the long term could be a means of outperforming the FTSE 100 in future years.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.