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Should income seekers buy Abacus Property Group for a 5.2% dividend yield?

Shares in Abacus Property Group (ASX: ABP) have provided investors with an average total return of 15.7% per year over the last 5 years according to Morningstar. As such, Abacus has outperformed the ASX 300 A-REIT index’s average total return of 11.7% over the same period (according to S&P Dow Jones Indices).

In its recently released HY 18 results, Abacus announced that underlying profit was up 11% to $77 million and funds from operations (FFO) were up 32% to $79 million.

So what has been the key to this success?

Management attribute it to their strategy of investing in a diversified portfolio which includes assets in the retail, office, industrial and storage categories.

Compare this with the ASX 300 A-REIT index which is dominated by retail REITs (45% of the index according to Vanguard) such as Scentre Group (ASX: SCG), Westfield Corp Ltd (ASX: WFD) and Vicinity Centres Re Ltd (ASX: VCX).

Retail REITs have under performed since July 2016 largely due to fears over the impact of online shopping and the “Amazon effect”. In contrast, storage REITs are expected to benefit from the rise of online shopping.

It comes as not surprise then, that Abacus’ capitalisation rate was highest in its storage category (7.6%) and lowest in its retail category (6.09%).

Looking forward, the change in leadership at Abacus could provide some transition challenges. Outgoing Managing Director Dr Frank Wolf has been with the company for over two decades but his replacement Steven Sewell is experienced having worked in senior roles previously at Macquarie Group Limited (ASX: MQG) and as the managing director and CEO of Federation Centres, now known as Vicinity Centres Re Ltd.

Abacus is currently trading at a dividend yield of 5.2% with a current distribution pay out ratio of 67.2% of its underlying profit.

Overall, shareholders have certainly benefited from Abacus’ diversified portfolio of assets.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has recommended Scentre Group and Westfield. 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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