Stockland Corporation Ltd (ASX: SGP) and Growthpoint Properties Australia Ltd (ASX: GOZ) are two of Australia’s largest real estate businesses, they’re both big enough to be in the S&P/ASX 200 A-REIT index.
Stockland has a diverse mix of real estate including shopping centres, aged care homes, residential housing construction and other commercial property. Stockland’s market capitalisation is $9.8 billion.
Growthpoint is much more focused on commercial property like offices, industrial and retail property. It’s a fair bit smaller with a market capitalisation of $1.97 billion.
Share price performance
Stockland’s share price has never recovered from its pre-GFC high of $9.55, it’s currently $4.13 and dropping. The share price has dropped 20% over the last three months because a U.S. Fed interest rate rise is on the cards for December.
It’s a similar story for Growthpoint, its share price is down 11% over the last month and a half.
However, the underlying businesses are still the same regardless of share price movements. The more the share price drops, the higher the potential dividend yield becomes.
Growthpoint’s dividend yield is now up to 5.71%. This is quite appealing for a business that has grown its dividend each year since 2010. In FY16 Growthpoint increased its dividend by 4.1%.
Stockland has started to increase its dividend after four years of the same payment. It’s currently trading with a dividend yield of 6.03%.
In its latest results Growthpoint grew its distributable income per share by 3.3%.
Growthpoint has a debt leverage of 42.6% which is pretty high compared to a lot of other real estate investment trusts, but not terrible.
Woolworths Limited (ASX: WOW) is the major tenant for Growthpoint, leasing 21% of its properties. Aldi, Wesfarmers Ltd’s (ASX: WES) Coles, Costco, and others are fighting for market share from Woolies, but Woolworths will still need to lease the properties to sell its goods.
Stockland grew its funds from operations by 12.5% during FY16. Its gearing is much lower than Growthpoint’s at 23.8%, which was slightly up from FY15’s 23.4%.
Time to buy?
Stockland is partly exposed to the upcoming apartment oversupply because it’s a builder of residential property. For that reason, I’m not a buyer of Stockland shares at these prices and I think the share price may drop by a bit more over the next one to two years.
Growthpoint is worth a closer look, it’s forecast to grow its dividend by 3.9% this year, meaning it’s trading with a forward yield of 7%.
I think Growthpoint is a decent real estate investment trust, better than Stockland, but I’ll wait until at least Janaury before I buy any real estate or infrastructure shares. The dividend yield on offer could be a fair bit higher in two months from now. That scenario would be a lot more tempting.
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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. 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.