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Does Shopping Cntrs Austrls Prprty Gp Re Ltd 5.5% yield make it a Buy?

Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) currently offers a trailing dividend yield of 5.5%, up 7% over the previous financial year and set to rise again.

That’s among the best in the A-REIT sector, particularly for the larger property trusts, and could be worthy of inclusion in your portfolio as it is forecast to rise further in 2017.

Let’s take a closer look at the trust.

Better known as Shopping Centres Australia Property Group (or SCA Property Group), the trust holds 83 retail shopping centres in its portfolio, with 69 in Australia and another 14 in New Zealand. Woolworths Limited (ASX: WOW) supermarkets make up 38% of gross rents, with Woolworths-owned Big W contributing an additional 6%. Coles, Kmart and Target – all owned by Wesfarmers Ltd (ASX: WES) contribute another 9% of gross rents with speciality stores making up 45%.

sca-property-group-source-of-rents

Source: company presentation

Occupancy rates are around 98.6%, which is excellent and 46.3% of leases expire beyond 2026, suggesting the company is in a strong position to further grow revenues (rents) as well having a stable lease base.

After paying out 12.2 cents per unit in the 2016 financial year (FY16), SCA is forecasting a distribution of 12.6 cents per share in FY17. The company also says its net tangible asset per unit are $1.92 – against a share price of $2.20. That’s a significant premium but does reflect the quality of its assets and tenants.

Foolish takeaway

For a yield of 5.7% – unfranked – investors would be better off investing directly into the trust’s major tenants Woolworths and Wesfarmers. Both companies are likely to offer faster-growing dividends, with Woolworths currently on 3.4% (4.9% grossed up) and Wesfarmers on 4.3% (6.1% grossed up) currently, but likely to grow faster than SCA’s in the years ahead. Woolworths also slashed its dividend in FY16, and that could zoom higher as the company turns its performance around.

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Motley Fool writer/analyst Mike King owns shares in Wesfarmers and Woolworths. You can follow Mike on Twitter @TMFKinga

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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