I’d invest £4,200 in this FTSE 250 REIT for £350 in passive income a year

Target Healthcare REIT (LSE: THRL) is one of the top five shares in the FTSE 250 index. The property company operates in the healthcare sector, counting many nursing homes in its real estate portfolio.

The Real Estate Investment Trust (REIT) company pays an 8.38% dividend per share and has an annual dividend yield of 8.38%. This is higher than the average yield for both FTSE 100 and the FTSE 250.

If I had money to invest, this is how I would aim for £350 in annual passive income by investing in companies.

Dividend income from property

Investing in REITs is a great way to diversify your stock market portfolio. They offer real estate exposure that generates passive income, allowing me to avoid the pain that can come with being a landlord.

Target Healthcare is one of the highest yielding REITs in the UK market so I think it deserves serious consideration for my portfolio.

After a big fall in recent months, Target Healthcare’s share price stands at 80.50p as I write. Great stock price volatility can create value investment opportunities, and I think this REIT falls into that category. If I had £4,200 to invest in FTSE 250 shares today, I could buy 5,217 shares.

The decline in share prices has affected dividend yields. So, if I invest now, I will earn less than £352 in passive income just from holding shares for a year.

As a long-term investor, I tend to hold these stocks for more than 12 months. If I reinvest the dividend into more, I can benefit from the compounding effect on my investment.

Excerpts from Target Healthcare REIT shares

One reason I am confident about Target Healthcare is the demographic transformation that is taking place in the UK. According to the ONS, the number of Britons aged 65 and over will reach 20.4m by 2066, equivalent to 26% of the total population. An aging population means increased demand for care providers.

I also like the defensive qualities of his stock. The lease structure is long-term (typically 30-35 years) and is linked to inflation. It is also non-cyclical, as the demand for social care does not depend on the performance of the wider economy.

In addition, the properties in the group’s portfolio are modern and purpose-built. Medical problems such as incontinence make the provision of an en-suite wet room an important consideration. About 96% of the group’s homes have wet rooms, compared to a national comparative of 29%.

Target Healthcare also continues to make progress in terms of occupancy rates. After decreasing during the Omicron wave during the pandemic, the occupancy rate increased from March 2022, according to the company’s latest data. High occupancy is essential to the group’s rental income.

There are several risks facing REITs. The next dividend payout on the stock is 72%. If the company’s profits come under pressure, I worry that the jumbo dividend yield may not be sustainable.

High inflation is another challenge facing businesses. Increased costs for staff, building materials, and energy can hurt a company’s margins.

However, overall, I think long-term tailwinds will improve share price performance. With some cash, I would invest in REITs to target a regular passive income stream today.