To round out a diversified portfolio, you want to have some fast growers and a few cyclicals to take advantage of a growing economy. Just as important is to have a safer, reliable layer of income from your investments that you can count on being there when markets are down.
Some investors like having a mix of stocks and property since owning real estate is for long-term growth. You can also get similar stable returns from real estate investment trusts (REIT). They can be for the long-term and as a cyclical play when property markets come out a weak period and begin rising.
Property fund manager and developer Charter Hall Group (ASX: CHC) has a mix of commercial, industrial and residential assets in its portfolio. It has $10.5 billion in funds under management (FUM) and its interim result was a 10% rise in operating earnings per security.
Its FY2014 full year guidance is for operating earnings per security to rise 7%-9%. In the last four years earnings and dividends consistently increased.
The stock hit a high of $4.62 in May 2013 before finding a bottom range of about $3.50 in December. Now it is back up to $4.15 and offers a 5.1% dividend yield. In the past three years, the company’s total shareholder return was an average annual 26.9%.
Dexus Property Group (ASX: DXS) also holds a variety of office, industrial and retail properties, as well as managing third-party assets. In the last four years, earnings per security have trended up, with a one-time drop off in 2012 and a swift and strong recovery in 2013.
In April, the company completed the acquisition of the Commonwealth Property Office Fund, which adds 21 properties to the portfolio, bringing the total to 45 and $7.5 billion in total asset value, up from $3.9 billion.
Its share price set a $1.21 high in May 2013 and is now $1.12. The dividend yield is 5.4%. In the first half of FY2014, distributions per security rose 6.2%. The total shareholder return for the past three years was an average annual 17.6%.
Lower interest rate periods like what we have now help the REITs acquire properties less expensively similar to how home buyers can afford houses better with cheaper finance.
The long-term advantages come from when property values rise over a number of years. That gain will come back to shareholders through dividend income.