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Real estate investment trusts (REITs) can be passive income powerhouses. These companies hold property portfolios from which most of their rents are paid out in dividends.
Under REIT rules, at least 90% of annual rental profits must be paid out to shareholders. That’s in exchange for certain corporation tax exemptions.
But their are other advantages to these trusts aside from the dividends they pay. Investors are saved the hassle and the up-front costs of buying property, and they don’t have to manage it or hunt for tenants. And unlike buy-to-rent, these investment trusts can provide exposure to many different sectors and not just residential rentals.
In my opinion, now’s an especially great time to consider targeting dividends with REITs. Want to know why?
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8.2% dividend yield
The Iran war has been catastrophic for many of these trusts’ share prices. With inflation on the rise, investors are expecting higher interest rates to last longer than previously predicted. The result is a potential hit to REIT earnings as borrowing costs rise and asset values take a whack.
But in some cases, I think the scale of the share price drop is unjustified. Take the case of Primary Health Properties (LSE:PHP). It’s sunk 7% in value since the start of 2026, driving its price-to-earnings (P/E) ratio down to a modest 8.1 times.
But what really grabbed my attention is the trust’s spiking dividend yields. For this year, the yield’s 8%, which is more than double the FTSE 100 share average of 3.2%. It marches even higher to 8.2% for 2027.
My favourite REIT
There are plenty of cheap REITs for me to choose from today. But Primary Health is by far my favourite. It’s why I’ve bought even more of its shares for my Self-Invested Personal Pension (SIPP).
Following last year’s acquisition of rival Assura, this is by far the London Stock Exchange‘s largest healthcare REIT with a portfolio of £6bn. In total, it holds 1,142 assets across the UK and Ireland including GP surgeries, dentists and pharmacies.
Its focus on this sector has numerous advantages. The rents it receives are unimpacted by broader economic downturns, which in turn leads to reliable dividends. In fact, market demand is stronger than the industry can meet, driven by ongoing demographic trends. The result? Primary Health’s organic rental growth accelerated to 3.4% in Q1, up from 3.2% a year earlier.
Too good to miss?
These factors have (and still are) having a substantial positive effect on dividends. Primary Health shares have:
- Delivered a growing dividend every year for 29 years.
- Carried an average dividend yield of 5.2% since its stock market listing in 1996.
Like any share, REITs like this come with some dividend risk. Though unlikely, in my view, a change to NHS primary healthcare policy might dent future investment. Costs might also rise if inflationary pressures endure. But on balance, I believe Primary Health is one of the best dividend shares out there to consider.
Should you invest £5,000 in Primary Health Properties Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Primary Health Properties Plc made the list?
Royston Wild owns shares in Primary Health Properties.
This story originally appeared on Motley Fool
