6.1% dividend yield! A FTSE 250 stock to buy & hold until 2030

Most Share on FTSE 250 is not known for its high dividend yield. After all, these small companies are mostly focused on growth. But there are some exceptions to this rule. And one of the companies from our passive income portfolio is currently offering an impressive 6.1% yield that keeps growing!

E-commerce is still a thing

With the fear of a recession still on the rise, businesses related to e-commerce have been affected lately. And it makes sense. As consumer discretionary spending drops, online sales volumes have suffered. Couple this with various increases in interest and the market value of warehouse properties has also followed a downward path.

At heart, it shouldn’t be surprising Warehouse REIT (LSE:WHR) share price in Euros has fallen over 30% in the past 12 months. As a quick reminder, the company is a warehouse operator. The management team is focused on finding and acquiring dilapidated properties in prime locations. Then invest in speeding up some before hiring them at a premium price, especially for e-commerce companies.

The group’s latest results show occupancy has only fallen by about 1% to 92.7% since this macroeconomic storm began. This durability comes from the average lease duration before the first break, which is 4.4 years. Even if a recession is coming, I doubt it will last nearly half a decade.

So, the cash flow remains intact. In fact, they are still growing despite the poor operating conditions. Management has therefore just boosted its third quarter dividend from 1.55p to 1.60p per share. And when combined with falling market caps, dividend yields have risen to impressive but seemingly sustainable levels.

The 6.1% dividend yield is risky

Although Warehouse REIT tenants are contractually obligated to continue paying rent, there is still a risk of default. After all, companies can’t pay with money they don’t have. And depending on the severity of the coming recession, the risk of payment delays could increase significantly. This is true because the company mainly caters to small and medium businesses.

It’s also worth pointing out that Warehouse REIT’s share price is highly correlated with net asset value (NAV) – the market value of the property portfolio. A sustained rise in interest rates will cause real estate valuations to fall, taking a cap on the FTSE 250 stock market. While this will push dividend yields higher, reversing the decline in share prices through dividends may take a long time.

That said, Warehouse REIT’s NAV currently stands at 151.7p per share. Compared to the current share price of 106.8p, the stock market has priced in a substantial property devaluation.

In other words, the impact of rising interest rates has been baked into stock prices. And personally, 30% seems huge, especially considering the critical resource warehouse space has become for e-commerce retailers. With long-term online shopping demand likely to continue to rise, this looks like a buying opportunity in my eyes. And that’s why I’ve added some stocks to my portfolio.