4 overlooked small caps paying huge yields

Back in July 2014, I mentioned four property trusts (A-REITs) paying dividend yields of more than 8% that looked like good prospects.

Well, guess what? They still are!

Ok, the dividends were (and still are) unfranked, but for companies that own mostly industrial assets, these appear like nice, safe income-paying machines.

The four A-REITs were Asia Pacific Data Centre Group (ASX: AJD) (“APDC”), Industrea REIT (ASX: IDR), 360 Capital Industrial Fund (ASX: TIX) and Australian industrial REIT (ASX: ANI).

The following table summarises their main points since my article back in July 2014.

Company Price then Price Now Capital gain Div yield NTA Forecast Div Forecast yield
Aust Industrial $2.01 $2.30 14% 0.182 7.9% $2.13 0.192 8.3%
360 Capital $2.24 $2.33 4% 0.21 9.0% $2.34 0.215 9.2%
Industrea $1.97 $2.00 1.5% 0.162 8.1% $2.02 0.15 7.5%
APDC $1.07 $1.25 16.8% 0.091 7.3% $1.24 0.092 7.4%
Average 9.2% 8.1% 8.1%

Source: Company reports. NTA = net tangible assets per share. Div = current year dividend

As you can see, investing across all four would have seen investors receive a capital gain of 9.2% plus dividends of around 8%.

Now 360 Capital has made a $2.40 offer for all the units (shares) in Australian Industrial REIT, in what could be a protracted takeover. Australian Industrial REIT also has net tangible assets of $2.13 per share, suggesting 360 Capital might be overpaying. This also complicates investing in either A-REIT. Investors could buy shares in Australian Industrial REIT at the current price of $2.30 and hope to receive $2.40 if the takeover proceeds.

Alternatively, given 360 Capital only holds ~33% of the shares in Australian Industrial, the deal has every chance of falling over. Australian Industrial has forecast a distribution (dividend) of 19.2 cents in the 2016 financial year (FY16) – equating to a yield of 8.3% at today’s price.

360 Capital, on the other hand, is forecasting a distribution of 21.5 cents in FY16 – the equivalent of a 9.2% dividend yield.

Industrea REIT has also seen some corporate action with the 360 Capital Total Return Fund (ASX: TOT) taking an 8.4% interest in the company.

In the 2015 financial year, Industrea paid out 16.2 cents in dividends, but is expecting lower income in FY16 and expects to pay out between 15 and 15.8 cents per security. At 15 cents, that equates to a yield of 7.5%.

Asia Pacific Data Centre Group (APDC) is forecasting a dividend of 9.2 cents, (partly tax-deferred), which means a yield of around 7.4% at the current price of $1.25. Even better, APDC pays dividends quarterly, as does 360 Capital, rather than bi-annually like the other A-REITs and most other ASX-listed companies. For investors looking for income on a regular basis, that might be hard to beat.

Foolish takeaway

Despite the reasonable capital gain across the four stocks, they are still offering reasonable yields of more than 8%. For those investors looking to diversify their income stream, the four stocks above might be worthy of a closer look.

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Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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