Should you buy Stockland in 2014?

Management at Stockland Corporation (ASX: SGP) described financial-year 2013 as one of transition for the property developer and manager. It was a year in which underlying profit fell 24% to $494.8 million, a decline that in management’s words was caused by “soft housing conditions, the impact of asset sales in the current and prior year, and the adoption of a more conservative approach to capitalisation of interest.”

For shareholders, Stockland’s share price performance was as uninspiring as the quote above. While the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) gained around 15%, Stockland’s share price gained less than 3%. However in the first few trading days of 2014 things appear to be looking up with the stock up over 3%, meanwhile the index is down nearly 0.5%. It’s of course far too soon to read anything meaningful into a few days outperformance, however there are reasons to be positive on the outlook for Stockland in 2014.

Firstly, in October the company sold its remaining 11.6% stake in fellow property firm Aveo (ASX: AOG) and realised $76.5 million. (Aveo recently changed its name from FKP Property Group). This sale further strengthens Stockland’s balance sheet which was geared at 22.7% as at 30 June 2013. The sale also creates opportunities to redeploy the funds elsewhere.

Secondly, in January 2013 Mr Mark Steinert was appointed as the new Managing Director. Having conducted a detailed strategic review upon his appointment to the role, Mr Steinert has proceeded to clearly articulate his plan for delivering value to shareholders in the coming years. Part of Steinert’s plan involves achieving optimal target weightings across Stockland’s portfolio of residential and retirement living and commercial property divisions. This is expected to help guide the firm’s allocation of capital decisions.

Thirdly, management’s guidance states that new projects will begin to contribute to earnings in the current year with Stockland targeting a 4% to 6% boost in earnings per share in financial-year 2014.

Foolish takeaway

Pleasingly for shareholders, Stockland maintained its dividend at 24 cents per security despite the fall in underlying profit. Companies with the ability to maintain their distributions to shareholders even during tough times can be important portfolio holdings for income-seeking investors.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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