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When searching for dividend stocks, it’s important to strike a balance between a juicy yield and the sustainability of income payments. It can be difficult to match the two, as a very high dividend yield can be due to a falling share price. However, some options have a generous dividend forecast while still having a strong track record of payments. Here’s one for consideration.
The company in focus
I’m talking about the Supermarket Income REIT (LSE:SUPR). As the name suggests, it’s a real estate investment trust (REIT) based in the UK that focuses on investing in supermarket properties.
Over the past year, the stock has increased an impressive 16%, with a current dividend yield of 7.24%. The fact that the stock is up and the yield is still high is a strong sign. If the dividend per share stays the same and the stock rises, this reduces the yield. It’s true that the yield has fallen modestly in recent months, but income investors will point out that in recent years, the dividend per share has been hiked.
It’s an attractive dividend option because it has a relatively stable cash flow. It makes money from rental income from leasing the supermarket buildings to tenants. These are usually large chains, so the risk of default is quite low. In theory, over time, the company can also benefit from property value appreciation.
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Dividend details
Typically, the REIT pays out quarterly dividends. Over the past year, this has totalled 6.11p. Looking ahead, the dividend is forecast to increase to 6.26p for the full year 2026, with it potentially rising to 6.36p in 2027. If I assume the share price stays the same, this would equate to a yield of 7.6% in 2027.
Some might look at the forecast and not be overly impressed. After all, it’s only a modest increase from the current yield. Yet a few points need to be remembered. The share price projection is just a forecast. The actual share price in the future might be higher or lower than right now, which could increase or decrease the future yield.
Another factor is the reliability. The REIT has a strong track record in recent years of paying out quarterly dividends. Based on the latest results and dividend cover, I don’t see this changing. Of course, nothing is guaranteed, but to be able to potentially achieve a yield in excess of 7% with relatively low risk of dividend cuts is quite appealing.
One concern is that the property values could fall due to weaker sentiment or other market conditions. Given that the share price should closely track the net asset value of the portfolio, this is a risk.
Overall, I think the stock offers a generous yield with a sustainable forecast, so could be something for investors to consider.
