Despite companies across the market cancelling their dividends, there is a stock which offers income investors a safe haven.

Supermarket Income REIT (SUPR) invests in UK property used to house supermarkets and fulfilment centres. Its biggest customers are Tesco (TSCO), Sainsbury’s (SBRY), Morrisons (MRW) and Asda.

The company aims to provide long-dated, secure, inflation-linked, growing income and capital appreciation over the longer term, with a target of a 7% to 10% total shareholder return per year over the  medium term.

In contrast to most commercial property companies which are having to reduce rents, Supermarket Income REIT recently agreed inflation-linked rental increases on two of its properties. And unlike some property firms struggling to be paid, it has confirmed that 100% of its March 2020 quarterly rental payments is expected to be received.

Thanks to the rent reviews, and its confidence in collecting all of its rent for the quarter, the company confirmed its third quarter interim dividend of 1.46p, meaning it is on track to meet its full-year target of 5.8p or a yield of 5.5% on the current share price, albeit no companies guarantee dividends.

Supermarket Income REIT says it has a robust balance sheet and is in a strong position to continue operating as usual despite the wider uncertainty.

After paying the third quarter dividend, the net loan-to-value ratio is expected to be 37.5% versus a limit on its covenants of 60%. Moreover, interest cover on the company’s debt is 6.8 times compared with a limit on its covenants of 2 times, and it has a cash balance of £32m.

Thanks to its solid balance sheet, the company continues to look for acquisitions. In February it joined forces with ‘a large institutional investor’ to acquire a minority stake in a portfolio of 26 supermarkets let to Sainsbury’s, although a deal has yet to be finalised.

Due to the lockdown on pubs, restaurants and food-to-go shops, the food retail industry has entered what analyst Clive Black of Shore Capital calls a ‘new normal’ where shoppers are driven to physical supermarkets and online, pushing sales up by as much as 50% or more.

While demand may ease in coming weeks after the household stockpiling seen in March, sales could still grow by 10% or more ‘for as long as this situation persists’ adds Black.

For investors seeking income and at the same time a way to tap into the strong growth in supermarket sales, Supermarket Income REIT is tailor-made.

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