The stock pickers’ guide to property stocks

Defensive property stocks yield good dividends for conservative investors, but finding one with growth prospects is even better.

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Defensive property stocks yield good dividends for conservative investors, but finding one with growth prospects is always attractive to any investor.

Combined, Westfield Group (ASX: WDC) and Westfield Retail Trust (ASX: WRT) are the biggest Australian retail property group. With a market capital of $34 billion, Westfield is the cornerstone of retail development throughout Australia, UK, US, and New Zealand and encompasses around 23,000 outlets. However, there may be better investments for your portfolio — companies that match the yield but also offer growth.

In property development, a healthy balance sheet is integral for continued expansion and investment. Although Westfield offers safety and a strong balance sheet, looking at its smaller counterparts might produce the growth your portfolio needs. At price-to-earnings ratios of 18.05 and 16.56 for WDC and WRT respectively, shareholders have already valued the company at higher prices, potentially based on the suspected positive results from the current financial year.

Narrowing the scope

With anticipated decreases in forecast earnings for 2013, GPT Group (ASX: GPT) and Stockland (ASX: SGP) could be expected to drop in coming months, enabling investors to get them cheaper in the near future. However, for investors who favour high dividend yields, the two companies offer 5% and 6.2% respectively.

Focusing on ownership of Australian real estate in retail, office and logistics/business park sectors, GPT has been resilient despite a tough residential market, unlike Mirvac Group (ASX: MGR). Positive shareholder returns in the past 12 months have revitalised Mirvac despite never fully being able to return to its highs prior to the global financial crisis. GPT’s NPAT increased 141.5% in 2012 whilst Mirvac reported in its first-half results that net profit was $55.2 million, down 69% on year.

A company that is an office sector-specific A-REIT which invests in CBD and major suburban markets is worth considering. Commonwealth Property Office Fund (ASX: CPA) has been a welcome addition to investors’ portfolios over the past three years by offering both a 5.4% dividend yield and an average capital return of 14.7% per year. Despite reporting a decrease in net profit, investors have sent the price up 19% in the past 12 months and the company maintains its guidance for the 2013 financial year of 8.60 cents per unit, up from the current earnings of 7.5. Monitor this stock, see how the market reacts to the current earnings forecast and you might even get this one cheaper.

Goodman Group (ASX: GMG) is an integrated property group that provides healthy exposure to the industry and is worthy of a spot on watch lists. With a high price to earnings ratio, the company is expected to report strong results in the current reporting season. For the second half of 2012, the company reported a 16% increase in operating profit despite lower overall net profit. It also reaffirmed a 6% increase in earnings per share and believes that with global operations in North America and Brazil about to come online, they will start to contribute to the organisation’s good results.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.

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