These 2 property stocks could be retirement cash cows

Should you buy these two REITs for their reliable dividends?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Retirement investors could stand to benefit from the inclusion of commercial property in their portfolios. With bond yields at unprecedentedly low levels, commercial property is an attractive alternative which offers potentially greater returns and long-term secure cash flows.

Commercial property also has a low level of correlation to fixed income and equities asset classes, and this makes it an important investment to include as it can help to diversify risk and reduce overall volatility in a portfolio.

However, building your own property portfolio may not be an option for most investors as it requires large, upfront amounts of capital and is potentially very time-consuming. Most investors would instead benefit from putting their money into real estate investment trusts (REITs), quoted companies which own and manage income-producing property portfolios. As such, REITs offer a way for investors to access the property market without having to buy property directly.

Should you invest £1,000 in Sainsbury's right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Sainsbury's made the list?

See the 6 stocks

With this in mind, I’m taking a look at two tempting high-yield REITs.

Industrial

Hansteen Holdings (LSE: HSTN) is undergoing a major transformation as the pan-European REIT sells off its entire property portfolio in Germany and Netherlands for €1.28bn. This leaves the company with investments in the UK totalling £677m, with another £35m invested in Belgium and France.

The company is also looking to increase its UK exposure, with Hansteen seeking to buy beleaguered Industrial Multi Property Trust (LSE: IMPT) for 330p per share. IMPT has a property portfolio valued at £86.2m with an annual rent roll of around £8m, but is highly geared, with a loan-to-value ratio of 73% .

Given IMPT’s estimated adjusted NAV figure of 307.4p per share, I expect the acquisition to be slightly dilutive to Hansteen’s NAV in the short term. In the longer run though, the deal seems likely to be accretive given the proximity of IMPT’s properties to existing Hansteen management offices, which will likely yield significant cost synergies. There’s also the potential for NAV growth from asset management opportunities, which due to IMPT’s high debt load, may have been previously overlooked.

Looking forward, Hansteen’s shareholders could be due a hefty special dividend of up to £600m following the sale of its German and Dutch assets. And post-special dividend, shares in Hansteen could look to trade at a respectable prospective dividend yield of 5%.

Diversification

One major benefit of investing in property via REITs over direct investment is diversification. A typical REIT owns a large number of properties and pursues a strategy of leasing properties to multiple tenants, with some even investing in a mix of property types associated with different business sectors.

AEW UK REIT (LSE: AEWU) is one such company — it’s a diversified small-cap which invests in office, retail and industrial space, with each of the three sectors representing roughly a third of its portfolio value.

The company is managed by AEW UK Investment Management, an affiliate of AEW Global, one of the largest real estate investment managers in the world, with more than €50bn in assets under management in North America, Europe and Asia. It has an annual management fee of 0.9% of invested NAV, with the company targeting a total annual return in excess of 12% on the IPO issue price over the medium term.

The REIT currently trades at a 7% premium to its NAV and pays its shareholders a yield of 7.8%.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Hansteen Holdings. 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

After collapsing 28% today, are Bunzl shares too cheap to ignore?

A poor trading statement has sent Bunzl shares to multi-year lows. Could now be a good time to consider investing…

Read more »

Investing Articles

These 5 stocks could earn £1,600 of annual passive income in a £20,000 ISA

Harvey Jones shows how to generate a high and rising passive income by buying a balanced mix of high-yielding FTSE…

Read more »

Young woman holding up three fingers
Investing Articles

3 things I like about Greggs shares

Greggs shares have tumbled by more than a third over the past year. But this writer has no plan to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Nvidia stock: beware the bear market rally

Andrew Mackie argues that investors should tread carefully before investing in Nvidia stock, as the worst of the sell-off could…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Up 73% in one year, is this the best value stock in the FTSE 100?

A brilliant run of form suggests this FTSE 100 giant should no longer make the cut as a value stock.…

Read more »

Investing Articles

The best could yet be to come for UK shares! I’m buying these ones

Amid ongoing stock market turbulence, this writer's been adding selected UK shares to his portfolio. Here's why and what he…

Read more »

Top Stocks

4 UK stocks trading well below book value to consider buying

Sometimes, it pays to be contrarian: who says the UK market has priced a stock precisely right, anyway?

Read more »

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »