FTSE 250 incumbent Unite Group (LSE:UTG) suffered when the pandemic struck. With these lockdown restrictions now a thing of the past and student numbers returning to normal, could the shares and returns head in a positive direction? Let’s take a closer look at whether I should buy the shares for my holdings.
Student accommodation provider
As a quick reminder, Unite is one of the largest student accommodation providers in the UK. It has established relationships with over 60 universities in the UK and provides over 75,000 beds to students all over the country.
So what’s happening with Unite shares currently? Well, as I write, they’re trading for 1,130p. At this time last year, the stock was trading for 1,195p, which is a 5% drop over a 12-month period. I’m not concerned by this small drop, as many FTSE 250 stocks have dropped due to macroeconomic factors as well geopolitical events.
A FTSE 250 stock with risks
However, Unite and its shares could come under further pressure, in my opinion. Firstly, it has a fair amount of debt on its books. This could become costly due to the current rising interest rates being introduced to combat soaring inflation. Servicing debt with higher interest rates can have a material impact on the company’s balance sheet, performance, and returns too. This could also affect investor sentiment.
Next, the pandemic meant many students did not require student accommodation and the way education continued changed too, by moving online. There is a chance that as the world continues to live with Covid-19, demand could be affected due to these changed ways of learning. Furthermore, the spectre of new variants still looms despite this being a small risk, in my opinion.
The positives and my verdict
So to the positives then. Unite is on a major growth drive. In fact, it has a pipeline of over 5,000 new rooms. This is linked to the fact that demand for student accommodation is outstripping supply. As one of the UK’s largest providers, it is in a unique position where it can leverage this into boosting performance, and hopefully returns.
Next, let’s take a look at Unite’s performance track record, although I do understand that past performance is not a guarantee of the future. Looking back, I can see it has grown revenue and profit for the past four years in a row. This growth is impressive and helps underpin returns and boost investor sentiment.
Finally, Unite shares could boost my passive income stream through dividend payments. I am aware that dividends are never guaranteed and can be cancelled at any time, however. Unite shares’ current dividend yield stands at 2.4%. This is over the FTSE 250 average of just below 2%. As a bonus, the shares look good value for money on a price-to-earnings ratio of just eight.
Overall, I would add Unite shares to my holdings. I believe the business’ growth drive will be successful and boost performance in the future. This should provide me with consistent and stable returns in the long term.
