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Are Stockland shares a buy for its high-yield dividend?

The Stockland Corporation Ltd (ASX: SGP) share price has edged higher following the release of its first quarter update.

In morning trade the diversified property company’s shares are up 1% to $4.66.

How did Stockland perform in the first quarter?

Ahead of its annual general meeting in Sydney, Stockland released a first quarter update which revealed that it has started the financial year in a positive fashion.

According to the release, Stockland has experienced an improvement in residential sales, an increase in comparable retail MAT growth, continued up-weighting in logistics, and progress in its commercial property development pipeline.

The company’s managing director and CEO, Mark Steinert, described the first quarter as solid.

He revealed that its residential communities business recorded its strongest quarterly result this calendar year. This was moderately above expectations with 1,149 net deposits taken and 4,245 contracts on hand. Though, it still expects a segment profit skew of around 65% to the second half of this year.

Mr Steinert explained: “The residential market cycle has improved, particularly in Sydney and Melbourne, and the southeast Queensland market is steadily improving. We remain on track to deliver over 5,000 settlements in FY20, including around 500 townhomes.”

The good news is that the CEO expects these improvements to carry over into FY 2021. He said: “FY21 revenue is expected to benefit from the residential market recovery and five new communities driving increased lot settlement volumes above the mid-point of our through the cycle range, together with potential price growth and cost savings.”

One negative, though, was the company’s default rate in Sydney. Although the market was strong in September, its “overall default rate remains elevated due to a portion of contracts extended from the fourth quarter of FY19 not settling, and the settlement volume for the quarter being seasonally lower.”

However, the number of defaults is moderating. Furthermore, management expects the default rate to reduce over the balance of the financial year.

How is the rest of the business performing?

Stockland’s retirement living business performed well in the first quarter. It achieved 215 net reservations for the quarter, which represents a 9.7% increase on a like-for-like basis. Management notes that this is reflective of the timing and quality of development completions and the improving housing market.

Elsewhere, the retail town centre portfolio delivered improved sales and the workplace and logistics sector continues to drive growth in its commercial property portfolio.

In respect to the latter, its development pipeline now totals over $2.5 billion. This includes developments in North Sydney, Macquarie Park, and the Sydney CBD.

Distribution guidance.

Once again, management has reiterated its flat FFO per security guidance for FY 2020. It also expects its distribution to be largely flat on last year’s 27.6 cents per security.

Despite this, it still offers one of the most generous distribution yields on the market at ~5.9%.

In light of this and its positive performance, I would class its shares as a buy along with the likes of Aventus Group (ASX: AVN) and Lendlease Group (ASX: LLC).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended AVENTUS RE UNIT. 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 Scott Phillips.

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