7% yield! 1 of the top dividend shares to buy in April

Following recent turmoil in the banking sector, growth and dividend stocks have experienced more volatility. The latter are usually more resistant to external market forces.

But worries about further bank failures as central banks continue to raise interest rates have investors on edge. This is especially true when it comes to real estate investment trusts (REITs).

As a reminder, REITs invest in various rental assets and return 90% of their net income to shareholders as dividends. This high payout ratio means that the company is immune to corporate tax. But it also makes this dividend stock highly dependent on external financing solutions, such as mortgages.

With the cost of borrowing rising with every rise in interest rates, property values ​​suffer, sending REIT stocks plummeting. But this may create a rare income opportunity for patient long-term investors. And it seems to be especially true for one particular real estate mogul.

Capitalization at a yield of 7%.

Over the last 12 months, the Warehouse REIT (LSE:WHR) This share price has fallen sharply. The stock is down about 47%, in line with the expected devaluation of its property portfolio. Since REIT stocks typically trade close to their net asset value (NAV), this downward trajectory is not surprising.

However, for investors focused solely on income sustainability, this sharp drop may not be a cause for concern. Why? Because from a cash flow perspective, Warehouse REIT continues to perform well. As a company that rents urban warehouses in the last mile, the company’s tenants are mainly small and medium-sized businesses. Most of those remain in a strong financial position.

Looking at the latest results, rental income is still rising, along with operating profit. Furthermore, management raised the dividend by 6.4%. And when paired with a drastic drop in price, the stock now offers a dividend yield of more than 7%.

With occupancy remaining strong at 92.7%, cash flow disruption, while not impossible, appears unlikely. And despite some smaller tenants breaching their initial leases, the group has £11.2m of cash on its balance sheet to act as a buffer.

Dividend stocks still have risks

As lucrative as this income opportunity seems, there are obvious risks to consider. Especially with regards to Warehouse REIT’s existing debt.

A good chunk of the loan is variable. That means when interest rates rise, more pressure is applied to the profit base which directly affects dividend affordability. Furthermore, higher rate loans also increase the cost of expansion, making growth more challenging in the future.

You also need to show that the company is deliberately targeting e-commerce companies for their tenants. This is great when the market is booming, sending these dividend stocks through the roof. But now that the economic slowdown has caused consumer discretionary spending to be volatile, demand for warehouse space may have plateaued, at least for now.

Bottom line

All things considered, the short-term outlook for Warehouse REIT is uncertain. But in the long run, as online shopping continues to gain popularity, the demand for good logistics facilities will increase. Therefore, buying these dividend stocks today, even though they may be volatile, can unlock long-term passive income.