This FTSE hidden gem now has a stunning 7.4% yield!

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2 days ago

The FTSE's filled with hundreds of dividend-paying enterprises. And even in 2025, with the FTSE 100 hitting new all-time highs, there remain plenty of high-yield opportunities for income investors to capitalise on. Supermarket Income REIT's (LSE:SUPR) a prime example of this, with a shareholder payout sitting at a whopping 7.4% this month. And as a cherry on top, the stock's also trading at a near-10% discount to its net asset value.
As the firm's name suggests, Supermarket Income REIT owns and leases a portfolio of 82 properties used by Britain's and France's biggest supermarkets. Its list of tenants includes Tesco, Sainsbury's, Waitrose, Morrisons, Asda, Marks & Spencer, Aldi, and Carrefour. But it's Tesco and Sainsbury's that make up the bulk of the group's rental income, at 43.5% and 30% respectively.
Investing in this sort of property has proven to be quite a lucrative niche. Large retailers tend to stick around for a long time. As such, the weighted average lease duration is around 12 years, providing ample long-term visibility into Supermarket Income REIT's cash flow.
This business model makes management life easier in terms of capital allocation. But it also makes the dividend more reliable and predictable. So it's hardly a surprise that shareholder payouts have increased every year since they were introduced in 2018 – even during the pandemic. And if the consensus forecasts from analysts prove accurate, this upward trajectory for payouts is on track to continue.
Needless to say, this sounds like a promising place to park some capital. Even more so, given the analyst team at Goldman Sachs has placed a 92p share price target on the stock, opening the door to some welcome capital gains. So what's the catch?
While Goldman Sachs is among the more optimistic institutional followers, even it's identified some key risks worth careful consideration. I've already touched on the fact that over 70% of rental income originates from just two customers. This dependency isn't likely to have gone unnoticed by the financial teams and Tesco and Sainsbury's, granting them a fair bit of leverage when it comes to negotiating lease renewals.
On the macroeconomic front, there's interest rate risk to consider as well. Like many REITs, Supermarket Income has relied heavily on cheap financing over the years. But now that interest rates have shot up, the cost of having a leverage balance sheet has also jumped, putting pressure on margins.
Having said that, the company doesn't appear to be over-leveraged right now. And considering the high yield paired with a robust business model, this FTSE stock could be a lucrative opportunity for income investors, making it worthy of closer inspection, in my opinion.
The post This FTSE hidden gem now has a stunning 7.4% yield! appeared first on The Motley Fool UK.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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