Have £5,000? here’s one FTSE 100 real estate play I’d consider after recent selling

Rupert Hargreaves — Mon, 05 Nov 2018 10:19:51 +0000

Over the past few weeks, as the FTSE 100 has plunged lower, shares in real estate investor Segro (LSE: SGRO) have been a safe port in stormy waters for investors. Year-to-date, as the FTSE 100 has fallen by 7.2% excluding dividends, Segro has added 6.3%. If we include dividends, over the past 12 months Segro has returned 16.5% for investors, compared to a loss of 2% for the FTSE 100.

Over the past three years, Segro has smashed the performance of the FTSE 100 returning 17.5% per annum compared to the FTSE 100’s 5.4% annualised. I reckon this market-beating performance could continue as Segro continues to expand its business empire.

Single-focus

It owns and operates modern warehouses. In total, the group owns 68m square feet of space, valued at over £8bn. Unlike other real estate investment trusts, which have recently come under pressure due to their exposure to the commercial property market, its warehouse portfolio means that it is well positioned for the e-commerce age. Demand for big-box warehouses is only increasing as retailers invest in their out-of-town infrastructure, as evidenced by the 9.5% increase in Segro’s rent roll for the nine months to the end of September.

As well as rent roll growth, it has 891,000m square feet of space in its development portfolio. A staggering 71% of this potential floor space has already been let, and in total, management expects to be able to achieve rent of £46m per annum on new space — an estimated net rental yield of 7%.

The one downside I see here is Segro’s valuation. At 615p per share, the stock is currently changing hands at a small 2% premium to its last reported net asset value. The dividend yield is also a less than impressive 2.8%. Still, I think it’s worth paying a premium for the shares considering Segro’s development pipeline, which should drive net asset value growth in the years ahead. And while today’s dividend yield of 2.8%, might not set pulses racing, analysts expect steady payout growth in the years ahead as new developments are commissioned.

Rapid growth

If you’re looking for a stock with a bit more of a yield kick, then Custodian REIT (LSE: CREI) might be for you. While Segro is seeking to invest in modern warehouses, Custodian owns a more diversified property portfolio spread across the UK. These assets are smaller than those of Segro, with an average price, according to the firm’s annual report, of less than £10m.

Today, Custodian announced that it has completed a deal to acquire “a high street unit on The Grove in Stratford, East London.” This is a great example of the types of property Custodian is looking to buy. Spread across two floors, it has two primary tenants and generates an annual general income of £150,935 for a net initial yield of 6.78%.

In my view, high street commercial units are a less attractive investment compared to big-box warehouses, especially considering where the world of retail is heading. However, high street assets do offer higher yields as evidenced by Custodian’s current dividend yield of 5.5%. According to my figures, like Segro, Custodian also trades at a slight premium to net asset value.

Overall, if you’re looking for income, and are willing to take on a bit more risk by investing in commercial property, Custodian could be a great addition to your portfolio.

The post Have £5,000? here’s one FTSE 100 real estate play I’d consider after recent selling appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

2 ‘hidden’ dividend stocks for income investors

Jack Tang — Sat, 04 Feb 2017 08:00:48 +0000

These quality small-cap dividend stock picks could help you boost your portfolio income.

Hostelworld Group (LSE: HSW) is a relatively unknown company which certainly deserves more attention. The online hostel booking platform is a game changer in the budget accommodation sector as it directly focuses on the low-cost budget accommodation sector that appeals to younger customers.

Millennials often look for more affordable accommodation as they tend to have less money to spend and have longer holiday stays than their predecessors. This has been driving up demand for hostel rooms, which are becoming increasingly popular alternatives to traditional hotels.

Recent trading conditions have been difficult though. The sector has been facing a number of headwinds following terror attacks in Europe last year, as well as macroeconomic uncertainties and currency fluctuations following the Brexit vote. Still, Hostelworld reported an 18% rise in bookings during the second half of 2016, with the company continuing to generate robust free cash flow.

Leading fund manager Neil Woodford has built up a sizeable stake in the company, with a shareholding of more than 22%, underlining his confidence in the company’s long-term prospects. Hostelworld seems well-suited to his Woodford Equity Income fund as the company has in place a generous dividend policy — it plans to pay approximately 70%-80% of its adjusted profits after tax as dividends.

With this in mind, city analysts expect the stock to offer a prospective dividend yield of 5.8% this year, rising to 6% for next year and 6.2% in the following year. What’s more, valuations are attractive, as Hostelworld trades at forward P/E ratio of 12.2, which analysts expect to decline to just 11.7 by 2018.

Regional property

Another stock that seems set to reward its shareholders with healthy dividends is commercial property company Custodian REIT (LSE: CREI).

Following its IPO in 2014, Custodian has been taking advantage of lower property prices outside of London to expand its portfolio size to 130 properties, up from just 48 at the time of the IPO. Unlike most REITs in the sector, it prefers the sub-£10m regional commercial property market which, due to weaker institutional investor demand, has helped it to build a higher-yielding property portfolio.

Most REITs involved in UK commercial property, including big names such as Land Securities and British Land, trade at a discount to net asset value (NAV) of more than 20%. But Custodian REIT has somehow managed to defy this trend, with the shares currently trading at a modest premium of 7%.

And despite Custodian’s premium to NAV, the stock offers a significantly higher dividend yield than most in the sector. It currently yields 5.7%, beating the sector average of less than 4%. City analysts expect the REIT’s prospective dividend yield to rise to 6.1% by 2017 and 6.5% by 2018. In my view this could be the perfect time to buy for rising dividends and long-term growth.

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