2014 has been a great year for property companies Australand Property Group (ASX: ALZ) and DEXUS Property Group (ASX: DXS). In fact, both companies have easily beaten the ASX, with Dexus posting share price gains of 19% and Australand being up 16%, while the ASX is up a rather measly 5% over the same time period. However, does this mean that Australand and Dexus are now overpriced and, if not, which is the better buy?
Top notch yields
With Aussie interest rates looking likely to either stay at 2.5% for a good while yet, or fall even further, a strong yield could prove to be a major asset for investors. On this front, both Dexus and Australand don't disappoint, with both companies currently yielding a hugely impressive 5.2%, although neither yield is franked. Even so, 5.2% compares favourably to the ASX's yield of 4.4% and shows that both Dexus and Australand, despite their 2014 price rises, appear to be attractive income plays.
Differing valuations
Although Dexus has outperformed Australand thus far in 2014, it is the latter which has the higher valuation right now. For instance, Australand's P/E is 18 – much higher than Dexus's 15 and also higher than the ASX's 16.3. Indeed, even when compared to the sector, Australand's P/E looks relatively high, since the property sector currently has a P/E of 15, which is of course bang in-line with Dexus's P/E.
Looking ahead
Despite this, Australand has huge future potential, which goes a long way to explaining why its shares trade at such a high rating. For example, over the next two years, Australand is forecast to increase its bottom line by a mightily impressive 41.9%, which leaves Dexus's 4% looking rather disappointing.
Furthermore, Australand is expected to pass on at least part of this growth to shareholders in the form of dividend increases of 11.1% over the same time period, which again compares well to Dexus's 5% forecast growth rate.
So, while Australand trades on a much higher P/E, its strong growth forecasts for the next two years make it a more appealing investment than Dexus. Certainly, both are great income plays, but when it comes to bottom line growth potential, Australand is the clear winner.
