These monster dividend yields can’t be missed

The hunt for high-yielding investments shows no sign of slowing down. Interest rates on term deposits and government bonds continue to fall, while the rising share market has pushed down the yields of some of Australia’s favourite income stocks.


Australian Real Estate Investment Trusts are one sector of the Australian sharemarket that’s well known for delivering long-term reliable dividends. The sector, as the name suggests, is involved in the purchase and management of real estate, often commercial, that offers high rental yields. The companies in the sector often use a significant amount of leverage (debt) but have historically been able to deliver reliably high dividend yields for investors.


Like many other sectors, the companies grouped under the A-REIT banner really suffered during the GFC. Those with high debt levels or interests outside their typical buy and hold property ventures were sold down even more aggressively as investors realised that the good times would be coming to an end. The period was good, in a way, as it flushed out some of the riskier plays in the sector.

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There are currently 50 A-REITs listed on the ASX. Their total market capitalisation is over $90 billion and they allow retail investors the opportunity to invest in high-quality (generally) residential and commercial property.


Amazingly, during the GFC the sector average dividend yield spiked above 15%, and investors that purchased heavily during that time would be reaping very handsome rewards now. For us mere mortals with only hindsight to help us, there are still a few quality buys in the sector that should deliver steady, growing dividends over time.

Unsurprisingly, the biggest company in the sector, Westfield Group (ASX: WDC), yields only 5%, but some of the smaller companies including Cromwell Property Group (ASX: CMW), Charter Hall Retail (ASX: CHC), and Abacus Property Group (ASX: ABP) are still paying out over 6.5% per year.


There are risks in any investment in any company, but for real estate investment trusts, the biggest risks are those of rising interest rates, another GFC-type event that limits lending, and falling real estate asset prices. The risk of these three events appears low at the moment, but that’s often the time to be most cautious.

Another company with a massive yield is the The Motley Fool's favourite income idea for 2014. Check it out in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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