Investing in real estate investment trusts, or REITs, can be one effective way to build income and diversify your portfolio. Here are three REITs paying generous dividends right now.
What Are REITs?
Real estate investment trusts are listed companies on a securities exchange that own real estate and typically aim to pay large distributions from the rent they receive. REITs can own different types of property such as commercial, residential, industrial, shopping centres, aged care facilities and storage units. Just about anything, really.
The Australian Finance Podcast episode below explores REITs:
Charter Hall Long WALE
The Charter Hall Long WALE REIT (ASX: CLW) is one of the many listed funds managed by Charter Hall Group (ASX: CHC), a leading Australian property group.
The Long WALE REIT (WALE stands for weighted average lease expiry) owns a portfolio of 118 properties across the office, retail, industrial and agri-logistics sectors. Combined, these properties are worth $2.13 billion.
CLW has these properties leased with a 99.6% occupancy rate and a WALE of 12.5 years. Better still, this REIT is able to increase the rent by 2.8% per year, on average. Dividends increased by roughly 4.5% between 2018 and 2019 and CLW currently offers a trailing dividend yield of approximately 4.85%. These dividends are also unfranked.
The Rask Finance video below explains franking credits:
Scentre Group (ASX: SCG) is one of the largest REITs on the ASX with a market capitalisation of more than $21 billion. Scentre Group is the owner of 41 Westfield shopping centres across Australia and New Zealand.
Although there is some talk of shopping centres struggling due to online shopping, Scentre Group reports that its centres received 535 million visits in 2018, suggesting shopping centres aren’t exactly dead yet.
REITs with a focus on shopping centres tend to pay some of the largest dividends. Scentre Group is no exception with a trailing dividend yield of 5.62%. Another example is Shopping Centres Australasia Property Group (ASX: SCP) which offers a 5.74% dividend yield. Keep in mind, both of these companies pay unfranked dividends.
Abacus Property Group
Abacus Property Group (ASX: ABP) is in a different space again from CLW and Scentre Group. Abacus invests in a portfolio of commercial and self-storage properties, most of which are based in major centres on the Eastern seaboard of Australia. The portfolio is currently worth $2.1 billion.
The Abacus share price has fallen nearly 8% over the last three months but is still up more than 18% year-to-date. The current trailing dividend yield is 4.76% and dividends have been slowly growing each year since 2016.
What Are The Risks?
The Australian property market is a hot topic right now. I’m not about to pick which direction it’s heading but it’s worth approaching REITs with some caution in the current environment.
The large share price rises that most ASX-listed REITs have experienced this year also means that some don’t represent particularly good value right now. So, while dividends are enticing, be mindful the price you’re paying.
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.