One blue-chip business performing well despite the big falls for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is real estate operator, developer, and manager Westfield Corp Ltd (ASX: WFD).
The stock is flat over the last six months compared to a 16% decline for the market which demonstrates Westfield's defensive qualities and why investors should consider this true blue-chip operator as a core portfolio holding.
Here are 5 reasons to suggest it deserves a spot in a broad range of investors' portfolios.
- Defensive earnings – being in the real estate business the group's revenues from operations are relatively stable and carry less risk of a significant or prolonged downturn than many other businesses in cyclical sectors like materials or financials.
- Yield – The group's defensive earnings allow it to pay a consistently growing dividend. It's currently around 34 cents on an FX adjusted and annualised basis that equals a handy 3.5% payout at today's price of $9.80.
- Overseas and US exposure – The dividend distribution is in US dollars and with the US on the verge of commencing a rate hiking cycle further strength in the US dollar will benefit shareholders. The group's exclusive overseas focus also gives Australian investors all-important exposure away from the softening domestic economy.
- Growth – The stock may seem expensive for a real estate business on current funds from operations multiples but it's the development pipeline that should deliver long-term growth and justify the valuation. The group is rightly concentrating on developing its most profitable flagship assets in major cities and over the long term this strategy is likely to pay off.
- Know how – This is a somewhat intangible quality, but in my opinion is the most important and underpins the entire investment case. Frank Lowy is not Australia's most successful businessman for nothing and the well-connected Lowy family is in charge of the group's long-term outlook. Expertise, connections, know how and who you know still count for a lot in the world of capital markets, legal, and big real estate development deals. As an example the group today just issued US$1 billion of debt with a low coupon of 3.25% over 5 years. The cash raised is likely to generate returns far in excess of the coupon and as an example management has forecast estimated development yields in the region of 7%-8% for its flagship assets.
The Australia and New Zealand assets of the Westfield business are now operated by Scentre Group Ltd (ASX: SCG), which is a high-yield but relatively low-growth business that the Lowy family have largely divested their interests in. However, investors solely seeking income could do worse than be attracted to Scentre's defensive nature and 5.3% yield.
However, at current valuations those seeking income with the potential for growth over the long term should not go past Westfield Corp and its top quality management team.
