Investors take heed: Low interest rates are here to stay.
With business conditions and confidence in Australia remaining subdued, interest rates have been put on hold in order to influence greater spending and investment.
With China purportedly on the cusp of experiencing a major slowdown in growth, both our domestic economy and exports are likely to remain slow, to the point that there is talk of the next interest rate movement being down, not up.
Interest rates on bank deposits are hovering barely above the rate of inflation – we’re talking a 0.3% margin – so it’s no wonder investors are turning more and more to the share-market in the hunt for cash payments.
Investors with a greater appetite for risk and foreign currency exposure can realise high dividends from the likes of Astro Japan Property Group (ASX: AJA) and Galileo Japan Trust (ASX: GJT), however there’s no need to take on the extra risk to earn payments of 5% and above.
Abacus Property Group pays a dividend of 6.6% bi-annually and has a relatively low gearing of around 27%. As the title suggests, Abacus derives most of its earnings from property development, rent, and sales, and the company has a strong track record of selling assets at a profit.
With its low gearing, dividends, performance record and strong portfolio of assets, there’s a lot to like about Abacus and it’s worth noting that the company is trading in-line with Morningstar’s ‘fair value’ estimate of $2.70.
Cromwell Group is a primarily Australian property developer just beginning to dip its toes into the New Zealand market through an investment in NZ Oyster Group.
Paying quarterly dividends of 7.4% and with gearing of 43%, Cromwell is more aggressive with its investing and is my personal favourite of the three companies mentioned today.
Morningstar estimates that it is 19% overvalued at present but investors are clearly paying extra in return for the big yields.
If you are comfortable with the extra risk it might not be a bad idea to do the same.
Finally, Scentre Group (ASX: SCG) is the well known former associate of Westfield Corp which, despite shareholder angst over its separation, continues to look an appealing investment.
Potential owners benefit from its massive size and blue-chip status, as well as an eminently experienced management team and expected yields of around 6% p.a. at current prices.
Even better, the market has been slow to snap up Scentre, with the result that it is has hardly moved from its listing price and still trades broadly in line with Morningstar’s fair value of $3.20.
Property shares can provide great dividend earnings with the security of tangible, valuable assets underpinning the share’s value.
While they also generally provide modest growth, property shares lack the more dramatic potential of companies which invest in growing businesses rather than collecting assets.
The Motley Fool has recently identified one small company that has an impressive record of earnings and dividend growth combined with an expanding business with defensive characteristics.
While its dividends are not as large as the companies in this article, our latest pick is likely to grow its dividends far more rapidly than property trusts, leaving investors to enjoy a stream of steadily rising dividends over time.
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Motley Fool contributor Sean O'Neill owns shares in Scentre Group.