23.5% yield. 1 of the best REITs to buy in July?
This REIT currently pays one of the highest dividend yields on the entire London Stock Exchange. Is this a warning sign, or a tremendous opportunity?

Zaven Boyrazian, MSc❯

Published 17 July

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Real Estate Investment Trusts (REITs) have long been a terrific way to gain exposure to the property market and earn some passive income. With the vast majority of net rental income paid out as dividends, REITs often provide shareholders with impressive yields.

But right now, Regional REIT Ltd (LSE:RGL) is wearing the crown for the largest yield. At 23.5%, shareholders are earning a pretty monumental income stream. What’s driving this enormous payout? And is this a trap or a buying opportunity?

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Investigating the yield
The percentage payout shareholders enjoy is driven by two factors. Either the underlying business is hiking dividend payments, or the stock price has collapsed through the floor. In the case of Regional, it’s the latter.

Like most REITs, Regional’s in the business of buying properties and renting them out to generate a reliable and consistent flow of cash. Across the first three months of 2024, the firm generated £65.5m in rent, with 97.2% of tenants paying on time. And with an occupancy just shy of 80%, business appears to be relatively stable from an operational perspective.

Sadly, the firm’s property portfolio has been hit fairly hard in terms of valuation. With interest rates going through the roof, market prices have tumbled, dragging down the share price. And the impact on Regional has been especially diabolical, given that 92.8% of its real estate portfolio is invested in office space – something that’s slowly falling out of fashion on the back of remote working solutions.

Nevertheless, management continues to pay dividends to shareholders, citing that the steady decline in inflation is making way for more favourable market conditions. So is this secretly a screaming buy?

Digging into the financials
Remote working opens the door to cost saving and some efficiency boosts for certain businesses. However, I’m not convinced office working is going to disappear. In fact, we’ve seen a lot of companies starting to encourage or even demand employees return to the office since the pandemic came to an end.

Therefore, the cyclical downturn in the office real estate market is likely to eventually bounce back. At least, that’s what I think. However, it’s difficult to predict when this might happen. And in the meantime, Regional’s in a bit of a pickle regarding debt.

As of March, the group’s net loan-to-value ratio sits around 55.2%. That’s a fairly significant amount of gearing for any business. And it’s significantly higher than management’s desired target of 40%.

The group’s started making progress in reducing its debt burden, which now stands at £413.2m versus £420.8m at the start of the year. And it’s also worth pointing out that all of its loans are now on fixed rates, providing clarity of future interest obligations.

But with an average debt servicing cost of 3.4%, it’s putting a lot of pressure on the bottom line. So much so that the firm’s being forced to sell some of its properties in a pretty terrible market, resulting in the destruction of shareholder value.

With that in mind, it’s no surprise that this REIT’s valuation’s plummeted. And while the firm appears capable of adapting, there are far less risky real estate opportunities elsewhere.

Therefore, personally, even with a 23.5% yield, this isn’t a stock I’m interested in buying right now.

£££££££££££££££

It’s always better to do some research before posting on the net.

With the cash raise, nearly completed the ratios will all improve.

With the new shares the yield will fall as the dividend is cut.

When the yield falls it will not make the share any less risky if u use that as the reason to buy. The Snowball will looking to sell into any rally and not buy, so I guess other people will be looking to do the same.

Another new name at the top of Winterflood’s list of monthly movers in London’s investment company space. We reveal which fund is having its moment in the sun as well as the names of the three investment companies that have muscled their way onto the broker’s latest list.

ByFrank Buhagiar•15 Jul, 2024•

The Top Five

Castelnau Group (CGL) storms to the top of Winterflood’s list of investment company monthly movers. Shares in the flexible investor are up +27.5% on the month, an increase on the previous week’s +17.2% gain. The lion’s share of the increase was made over the last few trading days of the week ended Friday 5 July 2024 after a Net Asset Value update issued on 4 July showed net assets stood at £317.5m as at 28 June 2024. The near one-third increase on the £236m reported as at 31 May 2024 largely down to a +45.7% jump in the value of Dignity – the funeral operator accounts for over 70% of CGL’s total assets.

Downing Strategic Micro-cap (DSM) finds itself back on the list, again. Shares in the micro-cap investor, which are up +20.1% on the month, appear to have reacted positively to the company’s press release of 8 July 2024 CIRCULAR & NOTICE OF REQUISITIONED GENERAL MEETING. Shareholders requisitioning a general meeting doesn’t sound like an obvious cause of a share price spike, especially when the fund in question is in the process of winding up and returning funds to shareholders.

The shareholders who requisitioned the meeting are named as Milkwood Capital whom the Board suspects is looking to gain control of the Board and ‘acquire the Company’s assets on the cheap by avoiding making an offer for the entire Company’. Among the resolutions put forward by Milkwood is one that aims to prevent the Board from declaring any dividend, return of capital or other distribution on or prior to the Requisitioned General Meeting. The Board goes on to point out, however, that the Special Dividends already declared on 3 April 2024, 28 May 2024 and 17 June 2024 will not be affected by the outcome of the general meeting. The general meeting is due to be held on 5 August, so won’t have to wait too long for the next instalment of this long-running saga.

Tritax EuroBox (BOXE), another new name to make it onto the list courtesy of a +15.2% gain on the month. Shares have been in demand ever since news broke out that Brookfield Asset Management was thinking of making a cash offer for the logistics real estate investor. Brookfield better get their skates on though for, as per BOXE’s 1 July announcement, the Board revealed that, following the announcement of Brookfield’s possible cash offer on 3 June 2024, it is in discussions with a number of parties from whom it has received and/or solicited expressions of interest regarding a possible offer for the Company.

Augmentum Fintech (AUGM) drops from first to fourth on the list after the fintech investor’s shares saw their gain on the month shrink to +14.1% from +18.8% previously. The shares have benefited from decent news flow in recent weeks including the latest full-year results and news that the South Yorkshire Pensions Authority has acquired a 3.99% stake in the fund. The shares though may need another positive update to make it onto next week’s list.

The Schiehallion Fund (MNTN)completes the top five – shares are up +14%. No material news out from the growth capital investor over the past month but the share price rise can be traced back to 24 June. That’s around the time speculation broke out that SpaceX is planning to sell shares at a valuation of $210bn – as at 30/04/24 SpaceX accounted for 7.3% of MNTN’s NAV. Enough there to give MNTN’s shares lift off it seems.

Scottish Mortgage

Scottish Mortgage’s (SMT) share price finished the week ended Friday 12 July 2024 flat on the month, an improvement on the previous week’s 1% loss. NAV fared worse with a monthly loss of -0.9% compared to a +0.1% gain previously. The wider global investment trust sector finished the week up +3.4% having previously boasted a +2.3% gain on the month. SMT’s ongoing share buyback programme still working its magic it seems.

The Tip Sheet

The Telegraph thinks Aurora Investment Trust is a buy, while This is Money offers up a possible solution for those investors wanting to jump on the Nvidia bandwagon but fear they have missed the boat – investment trusts that hold Nvidia but trade at discounts to net assets.

ByFrank Buhagiar

Questor: Believe in this FTSE 100-beating hidden gem as Gary Channon has

The strapline accompanying the above article is ‘Investment trust bargain: this fund has had a phoenix-like recovery’. The phoenix analogy is appropriate for two Firstly, the fund in question is Aurora Investment Trust (ARR) which back in January 2016 was the UK’s worst-performing fund. January 2016 was the month when value investor, Gary Channon, took over the management of the fund and since then ARR has generated a share price tota return of +80.7%. That’s a little off the FTSE All Share’s +86.2% but, as The Telegraph’s tipster explains, this reflects the discount to net assets at which the share price has been trading at on account of UK stocks falling out of favour. Still, enough there to warrant the phoenix-like recovery tag. If that wasn’t enough, the investment management firm run by Channon is called Phoenix Asset Management Partners!

Questor points the finger at Channon’s value approach for the turnaround in fortunes – a focus on investing in a small number of intensively researched stocks he believed to be trading well below their intrinsic value. The fund holds the likes of sports retailer Frasers Group, housebuilder Barratt Developments and investment broker Hargreaves Lansdown which recently found itself the subject of a £5.4bn bid from private equity.  ARR also has a holding in another Channon-run fund, Castelnau (CGL), the shares of which recently jumped +30% on the back of a +46% increase in the value of Dignity – the funeral services group accounts for over 70% of CGL’s assets.

Questor sees Castelnau’s revaluation as ‘an endorsement of Mr Channon’s approach and reiterate our belief in Aurora, which is 13.5pc invested in the sister fund, giving it a decent exposure to Dignity amid a more balanced portfolio that the manager believes could grow a further 130pc before being fairly valued. Questor says: buy.’

This is Money: The investment trusts to back Nvidia and the AI revolution at a discount

Earlier this year, Nvidia became the world’s most valuable company. The shares have since fallen back but as at the date of the above article had still put on +161% since January 2024 and were up a near +3000% over the past five years. All well and good for holders of shares in the US semiconductor giant who are sitting on spectacular gains. But what about those investors who’d like to jump on the AI bandwagon – Nvidia controls 90% of the market for ‘accelerator’ microchips that power generative AI – but fear Nvidia could be a bubble waiting to burst?

This is Money offers up a solution: ‘It is possible to acquire a stake in Nvidia and the other Silicon Valley names through investment trusts whose shares are at a discount to their net asset values (NAVs).’ The article goes on to highlight well-known names such as Baillie Gifford US Growth, F&C IT, JPMorgan Global Growth & Income, Monks and the soon-to-be combined Alliance and Witan. But “some lesser-known names are also backing the Nvidia supernova’ too. These include:

Allianz Technology – Nvidia 9% of assets; shares trading at 6% discount. Fund also holds the likes of Apple, Meta and Microsoft.

Canadian General Investments – Nvidia 8.5% of assets; shares trading at a 41% discount. Fund holds a diverse range of investments including railway companies.

Manchester & London– Nvidia 32% of assets; shares trading at a 15.5% discount to net assets. This is Money notes fund manager Mark Sheppard holds 57% of the shares, offering ‘considerable incentive to shrink the discount.’

Martin Currie Global Portfolio – Nvidia 9% of assets; shares trading at a relatively small 2.85% discount. The fund holds a number of non-tech investments such as L’Oreal. ‘This may be an option if you feel that your portfolio contains too much tech.’

Polar Capital Technology – Nvidia 10% of assets; shares trading at a 6.72% discount.

Scottish Mortgage – Nvidia 9% of ‘this £11.5billion FTSE 100-member trust whose discount has reduced from 20 per cent last summer to 9 per cent.’

I’m taking a step closer to financial freedom with dividend shares

by Charlie Keough

The Motley Fool

I’m buying dividend shares today so that when I retire, I can live off the passive income. The end goal is to be financially free.

Financial freedom will have a different meaning for everyone. For me, I want to be able to enjoy my later life and use the nest egg I’ve built over the years to supplement that.

Around 75% of my portfolio consists of shares that have a dividend yield of 4%, or higher.

The longer u have for accumulation, the more u will have to spend when u are in de-accumulation. It’s all about the yield, the yield and nothing but the yield.

I’ve bought back into JLEN where the current profit for the Snowball is £1,888.21

8800 shares for 8k yielding 8% and trading at a discount to NAV 18.4%

TENT

Is winding down so I’ve sold at a loss of £1,084.00

TENT has earned £1,301 in dividends which has been re-invested in the portfolio.

RT toghrr@ntlworld.com 82.1.178.93

Given your recent LBOW loss, would it be a good idea to use Stop Losses ? Perhaps a new rule ?

The ultimate aim of the Snowball is to own a portfolio of shares that earn dividends and sit in the account at zero cost.

7% compounded doubles in ten years

7% dividends only fourteen years

Holding the portfolio shares thru thick and thin and there will be plenty of thin.

With reference to LBOW the share should have been sold after the first cash return at 47p, when the dividend policy changed. The lesson is to follow the rules and invest only for dividends and never chase a capital gain.

The LBOW sale doesn’t change the fcast or the target as no income was included in the fcast/target.

The big money is not in the buying or the selling, but in the waiting.
One major advantage of taking the long view is you can afford to ignore the short-term volatility of the stock market.

C Munger

Thursday 18 July

Downing Strategic Micro-Cap Investment Trust PLC special div payment date
Invesco Global Equity Income Trust PLC ex-dividend payment date
JPMorgan China Growth & Income PLC ex-dividend payment date
Montanaro UK Smaller Cos Investment Trust PLC ex-dividend payment date
Schroder Oriental Income Fund Ltd ex-dividend payment date
TwentyFour Income Fund Ltd ex-dividend payment date

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