4.1% dividend yield! A FTSE 100 REIT I’d buy for long-term passive income

I think REITs can be one of the best stocks to buy for long-term passive income. A commitment to pay out at least 90% of annual profits in the form of dividends can give investors plenty of extra cash.

United Group (LSE:UTG) is one REIT I’ve been thinking about adding to my own portfolio for some time. And appetite for FTSE 100 business has risen after a rock-solid update last year.

So what happened?

Unite is one of the largest providers of student accommodation in the country. And on Tuesday it said it expects adjusted earnings per share (EPS) for 2022 to come “at the top” from the predicted range of 40p to 41p.

Chief executive Richard Smith commented that “reservations faster than the new sales cycle, reflecting strong demand from new and existing students as well as new nomination agreements with universities“.

He added that “we now expect to generate a rental yield of at least 5% for the 2023/24 academic year, which will help offset the cost pressures we are facing through higher utility and staff costs“.

The company had previously expected to record rental growth between 4.5% and 5%.

Unite says 70% of its rooms are now sold for the next academic year. That is up significantly from the 60% figure recorded a year ago for the current academic period.

The business said it witnessed “an increasing number of students are looking to secure accommodation earlier in the sales cycle than the previous year“. He also said that demand from universities is also increasing.

Dividend growth

Unite clearly has the wind in its sails. However, in the current economic landscape, there is no guarantee that room demand will continue to increase. Students may not have plans to continue their studies if the cost of living crisis continues.

But supportive City analysts believe Unite’s annual earnings should continue to grow even as the UK economy slumps. Earnings growth of 10% and 6% is forecast for 2023 and 2024, respectively.

As a result, brokers expect the REIT to continue to increase its dividend. The 32.55p per share dividend forecast for 2022 is expected to rise to 36.1p this year and to 38.2p in 2024.

This means that the dividend yield of 3.9% for this year increases to 4.1% for next year.

Should I buy this REIT?

This is not the biggest yield among UK REITs, of course. But as an investor looking for long-term passive income, I still think Unite is the best stock to buy.

Estate agents Savills expects Europe’s population of 15 to 19-year-olds to grow by 5.8% between now and 2027, suggesting the number of students in the UK should also continue to rise. But the development pipeline for student accommodation remains weak and there is a huge shortage of supply.

So businesses like Unite can expect strong rental growth in the coming years. And with the addition of profits and dividends it seems to stay up at a healthy level. With cash, I would look to add this REIT to my stock portfolio.