It took some time, but the RBA finally gave in to dropping interest rates. The 0.25% cut may not sound like much, yet the central bank's acceptance that rates still need to go lower to get the Australian economy going again is much more important.
After months and months of holding off to see if a weaker Aussie or falling oil prices would kick start the domestic market, this change in stance may be just the first cut to come.
That's why one group of stocks is on the rise – property related companies. Just like a rate cut stimulates house purchases, housing companies build more homes and commercial property investing and yields become more attractive to long-term investors.
Real estate development company Stockland Corporation Ltd (ASX: SGP) hit a new high this week. Just when there was talk the housing market might cool down in 2015, this and any following rate cuts could put a fire under property. Stockland recently announced a new development of 12,000 homes within the Melbourne area, starting this year.
The rate cut will sweeten the demand for new home sales in the capital cities. Stockland's stock is priced a little high just now, but does offer a 5.2% yield unfranked. I would suggest waiting for a pullback for a better entry price and higher dividend yield.
Commercial property is also taking off. Lower finance costs can increase investment returns and yields. Foreign investors are especially on the move, buying up office buildings and retail space. DEXUS Property Group (ASX: DXS) reported research finding one-third of commercial property was bought by overseas funds and companies in 2014.
Not surprisingly, DEXUS itself hit a multi-year high this week. The property owner and manager's 4.9% yield will get dividend income investors' attention. Analysts are forecasting mid-single digit earnings growth, but dividends may increase as much as 7.1% on average annually for the next few years. As bank term deposit rates fall in step with the rate cuts, savers will jump ship and head for solid dividend stocks like DEXUS.
