I’m looking to add to the investments in my Stocks and Shares ISA in December. And there are a couple of UK stocks on my radar.
Right now, the best opportunities I can find are in the real estate sector. Despite a recent upturn in share prices, I still think there are bargains on offer.
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Should you invest £1,000 in Dunelm right now?
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REITs
Real estate investment trusts (REITs) are companies that own properties and lease them to tenants. Some 90% of the income they generate is distributed to shareholders via dividends.
Rising interest rates have been weighing on property prices over the last 12 months. Despite this, rental demand is strong at the moment.
As a result, share prices in the REIT sector have been falling, but their rental income remains intact. This makes them attractive for investors looking to earn passive income from property.
Recently though, things have started to turn around. Stabilising interest rates have resulted in property prices starting to rise, causing REITs to rebound from their lows.
Prices are still short well short of their January levels, though. That’s why I’m looking to take advantage now while there’s still an opportunity here.
Primary Health Properties
At the moment, I think the best value in the REIT sector comes from stocks outside the FTSE 100. One of these is Primary Health Properties (LSE:PHP).
Like a lot of REITs, the company has a significant amount of debt, which could be a risk going forward. But the firm is in a stronger position than most of its competitors to deal with this.
With a portfolio of healthcare properties, the business gets most of its rent from the NHS. This makes its future earnings highly reliable, which helps it manage its interest payments.
Right now, there’s a dividend yield of close to 7% available for shareholders. And holding the stock in a Stocks and Shares ISA means my income is exempt from dividend tax.
That’s why Primary Health Properties is on my list of stocks to buy in December. But with the stock recovering 12% last month, I’m not hanging around.
The PRS REIT
Rising interest rates have been causing demand in the home rental market to increase. And that’s good news for the PRS REIT (LSE:PRSR), which owns a portfolio of over 5,000 houses.
As a result of rising demand, rents have been increasing, which is a good thing for PRSR – up to a point. If rents become unaffordable for tenants, the risk of defaults increases.
The company is in a good position here, though. Its tenants pay on average 22% of their income on rent, which is well below the 35% limit recommended by Housing England.
The company’s rising share price means the dividend yield is currently 5%. I think that’s till good value, but it might not be if it gets any higher.
That’s why I’m looking to buy the stock in December. I see this as a rare opportunity to take advantage of a downturn in the UK housing market.
