Why this stock’s 7% dividend yield is so hard to ignore

Imagine having Woolworths as your long-term tenant… you’d be pretty comfortable with your investment.

| More on:
a woman uses a card to pay at a restaurant, with the waiter leaning into the table where there is food and drink after a meal.

Image source: Getty Images

Property investors really only want two things; a tenant that will look after their property and a tenant that pays on time. For residential property investors it’s often hard to spot the correct tenants, especially when they’re being screened by an agent. But what if you could have the dependable fellows in charge of Coles or Woolworths as your tenants?

Tenants that Pay

That’s exactly the ideal situation that Hotel Property Investments Ltd (ASX: HPI) and ALE Property Group (known as Australian Leisure & Entrtmt Pty Mgt Ltd (ASX: LEP)) have found themselves in.

Hotel Property Investments listed on the ASX 10 months ago at $2.10 and has outperformed the ASX 200 by 6% since, rising 14% in that time. ALE has been listed for over 10 years and has provided incredibly consistent shareholder returns since 2011.

Pubs and Bottle Shops

Hotel Property Investments leases out 46 of its 47 Queensland pubs and standalone bottleshops to Coles Liquor and associated bottleshop brands owned by Wesfarmers Ltd (ASX: WES). Importantly, the lease terms on the majority of properties are long and given the reliability of income from the Wesfarmers group, investors should have confidence that the FY15 forecast yield of 7% can be achieved and built up in years to come.

ALE Property Group is in a similar position to HPI. While it is larger, at a market cap of $634 million versus $308 million for HPI, its portfolio of 86 capital city pubs are leased to a company that until recently was majority owned by Woolworths Limited (ASX: WOW).

Woolworths’ 75% stake in the holding company, called Australian Leisure and Hospitality Group, has recently been sold to rival real estate investment trust Charter Hall Group (ASX: CHC). This shouldn’t have any material medium-term impact for ALE as the long-term leases to Woolworths’ pubs and bottle shops will protect the group’s 5.2% (and growing) yield into the future.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

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

More on ⏸️ Investing