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Are ASX 200 REIT shares a dividend trap?

Real Estate Investment Trust

ASX 200 real estate investment trusts (REITs) have been smashed in 2020. While the S&P/ASX 200 Index (ASX: XJO) is down 17.57% this year, many of the Australia’s corporate landlords have lost billions in value.

What’s the attraction of ASX 200 REIT shares?

The “trust” part of real estate investment trust is the key here. The Aussie REITs are setup in a way that requires them to distribute 90% or more of their profits each year. That means ASX 200 REIT shares often have some of the highest dividend yields on the market.

A dividend yield is calculated by dividing the latest full-year dividend by the current share price. Here’s where things get interesting after the recent bear market.

Many of the largest REITs have been hammered lowered in 2020. Scentre Group (ASX: SCG) shares are down 41.49% in 2020 while the Stockland Corporation Ltd (ASX: SGP) has fallen 35.12% in the year to date. The news isn’t much better for Mirvac Group (ASX: MGR) shareholders who’ve watched the ASX 200 REIT share fall 32.09% this year.

But if you didn’t know about COVID-19, you might think the Aussie REITs are solid buys. Scentre, Stockland and Mirvac shares are yielding 8.46%, 9.11% and 5.69%, respectively. Those are some handy numbers when times are tough and income is tight.

However, ASX 200 REIT shares may be a dividend trap. Rental income is likely to slump for these property owners and developers in the current climate. Many retail stores will close and tenants are already threatening not to pay. That’s bad news for the Aussie REITs and their FY 2020 distributions.

Is it all bad news for the Aussie REITs?

I don’t think ASX 200 REIT shares are the best buy for income in 2020. However, that doesn’t mean they still can’t be a good investment.

If you’re investing for the long-term, the Aussie REITs could still be a stable income option. I wouldn’t bank on any ASX dividend share income in 2020 given the circumstances, but the long-term prospects for REITs could still be intact.

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Returns As of 6th October 2020

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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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