Social housing fund Civitas Social Housing (CSH) has a stable income stream which should underpin its dividend-paying capability through the current uncertainty.

As such we think the real estate investment trust could be an attractive option amid a wave of dividend cuts from UK-listed companies.

Civitas provides specialist accommodation to people with learning disabilities, autism, and mental health disorders which has been adapted to their requirements. Typically its tenants have full life expectancies and they do not have heightened vulnerability to the coronavirus.

Rents are paid by local authorities using money they get from central government. Properties are signed on leases of over 20 years which are wholly funded by the local housing authority and supported by government policy.

Rental income rises in line with inflation for the most part and demand is outpacing supply. Despite the pressure on public finances from the measures taken to mitigate against economic uncertainty, it seems unlikely this provision would be a target for cuts.

After a strong start in the wake of a November 2016 IPO the shares stalled as Civitas was caught up in concerns about financial issues at of some of the housing associations to which it and similar vehicles rent homes.

The company also struggled to deploy capital quickly enough to ensure its dividend payments would be 100% covered by earnings.

The company announced on 19 March that it had hit this threshold. This accompanied news it had completed the purchase of five freehold properties, encompassing 63 tenancies, for a total consideration of £17.8m.

The company’s gross loan-to-value is 28% against a targeted average level of 35% and a cap of 40%. More than £212m worth of its properties are unencumbered by debt.

Despite a relatively strong performance for the shares in the context of the carnage seen in wider equity markets, it still trades at an enticing 9.2% discount to net asset value and offers a dividend yield of 5.5%.

The company plans to pay its next quarterly dividend in May as usual and this resolve is backed by a cash reserve of between £25m and £30m.

Director Andrew Dawber tells Shares the company has plans to work with the NHS to provide new forms of accommodation for those who cannot be sent home after hospital treatment, potentially freeing up expensive and in-demand beds on hospital wards.

He notes the coronavirus outbreak has demonstrated how the NHS has too little ‘redundancy’ in terms of its capacity to cope with future health crises.

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