REITs (or real estate investment trusts) are a popular choice for investors looking for ASX dividend income. By primarily owning property assets, REITs are able to pass on most of their rental income in the form of dividend distributions to their shareholders. This means that virtually all ASX REITs are today offering market-leading income opportunities to investors.
Take Scentre Group (ASX: SCG) as an example. Scentre owns all of the Westfield-branded shopping centres in Australia and New Zealand. The income from these assets fuels the 4.87% distribution yield that investors can expect from SCG shares bought today.
Stockland Corporation Ltd (ASX: SGP) is another popular, diversified ASX REIT – one which investors can expect a juicy 5.75% yield from on today's prices.
But the largest (and arguably most popular) ASX REIT is Goodman Group (ASX: GMG). Goodman has a market capitalisation of just over $25 billion and has made a name for itself by finding top quality industrial land. By leveraging these assets, Goodman has enjoyed very healthy growth for most of the past decade.
By you wouldn't expect a REIT like Goodman to offer a 2.19% distribution yield (non-franked). Yet that is what investors who want a piece of Goodman's pie can expect on today's prices. That kind of yield is barely above the rate of inflation these days – and certainly pales in comparison to Scentre, Stockland and most of the other REITs available on the ASX.
So why would income investors go with Goodman?
Well, in my opinion, the answer is that they're not. Five years ago (FY14), GMG shares were paying out 20.7 cents per share in distribution payments. In FY19, it was 30 cents per share. That's a healthy rate of growth, but from my view its nothing to really write home about.
However, GMG shares have climbed from $5.80 to $13.88 (the price at the time of writing) over the past five years – a rise of 135%. Even in 2019 alone, Goodman shares are up 28%.
This tells me that the growth narrative of Goodman is drawing in more and more growth and momentum investors. The resulting share price appreciation has pushed the yield you can expect from GMG shares lower and lower – leaving income investors in the dust.
Foolish takeaway
I think Goodman is a great company and its push into the Amazon-style warehousing space shows excellent foresight and planning by management. However, I don't see any real reason to buy this stock for income at the current price.
