Finding a mix of income and growth from a stock can be challenging. Many shares fall into one of the two categories and it can therefore be difficult to obtain a high overall return through the investment cycle.
However, there are a number of real estate investment trusts (REITs) which appear to be undervalued given their future prospects. In addition, many of them offer high and growing dividends. Here are two prime examples which could be worth buying today.
Improving performance
Reporting on Tuesday was West Midlands-focused commercial property specialist Mucklow (LSE: MKLW). The company’s first half of the year was relatively strong, with its underlying pre-tax profit increasing to £8m from £7.9m in the same period of the prior year. Its net asset value per share increased by 35p to 506p. With the company’s shares trading at 500p, it continues to trade below net asset value. This suggests that it could offer a wide margin of safety at the present time.
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Encouragingly, the company’s performance has benefitted from steady occupier demand and rental levels that continue to grow. Property values are also buoyant, with strong investor interest and a lack of supply having a positive impact. The company’s vacancy rate at the end of 2017 was 7.5%, which is relatively high. However, this level is expected to decrease significantly in the second half of the year.
With a dividend yield of 4.6%, Mucklow appears to have income potential. Its earnings are due to rise by 2%-3% per annum during the next two years, which could allow its dividend growth to match inflation. With its shares appearing cheap at 500p, now could be the right time to buy it for the long run.
Investment potential
Also offering the prospect of high total returns within the REIT sector is Big Yellow Group (LSE: BYG). The self-storage specialist has enjoyed a prosperous number of years, with the supply of self-storage space in major urban areas across the UK continuing to be relatively limited. Therefore, pricing has generally been favourable, with this situation having the potential to continue over the medium term.
As a result, the company is forecast to post a rise in its bottom line of 8% in each of the next two years. This could filter down into a higher dividend. And with the stock currently yielding around 4% at the present time, it could become an even more appealing income stock for the long term.
Certainly, the outlook for the UK economy is uncertain. Brexit is now just over a year away and this could mean that consumer confidence comes under further pressure. This could translate into moderated demand for solutions such as self-storage. However, with a number of prime locations and an improving brand strength, Big Yellow Group seems to be well-placed to continue to perform well within what remains a growing industry.
