Social distancing and lockdown measures have caused many real estate investment trust (REITs) to defer dividends and fall out of favour. Industrial REITs could be a hidden gem within the real estate sector with reliable clients such as eCommerce, manufacturing, logistics and construction that have been able to carry out business as usual.
The reliability of its clients could make industrial REITs some of the best ASX 200 dividend shares to buy right now. Let’s take a closer look.
Why are REITs struggling?
REITs typically maintain properties within the office, retail, industrial and residential sectors. Office and retail-oriented REITs have struggled through COVID-19 due to shopping centre closures, rental disputes and the shift to working from home. This has seen the likes of Scentre Group (ASX: SCG) and Vicinity Centres (ASX: VCX) share prices fall more than 40% and defer interim dividends.
In the case of Scentre Group, its April rental collection figures went as low as 28% of its regular monthly gross rental bills. There has since been a V-shaped recovery with August representing 86% of regular monthly gross rental bills. Despite the swift recovery, the impact throughout April and May has meant Scentre Group has opted to defer its interim dividend. I believe it could become difficult to gauge the reliability of dividends from office and retail REITs moving forward.
Enter industrial REITs
Industrial REITs such as Goodman Group (ASX: GMG), Centuria Industrial REIT (ASX: CIP) and APN Industria REIT (ASX: ADI) have not only outperformed the S&P/ASX 200 Index (ASX: XJO) but also maintained its all important dividend payment. The consistency of its cash flow and outperformance of the general market could make it an ASX 200 dividend share for yield focused investors.
Centuria Industrial is one of Australia’s largest domestic pure play industrial REITs. The company has more than 50 high quality assets and a portfolio value of $1.6 billion as of 30 June 2020. 52% of portfolio income is derived from tenant customers directly linked to the production, packaging and distribution of consumer staples and pharmaceuticals. This includes high profile names such as Arnott’s, Visy, Australia Post and Toll. The company currently pays a dividend yield of 5.70%.
Goodman Group on the other hand offers a much lower dividend yield but has provided more in terms of capital gains compared to the ASX 200 and its REIT peers. In FY20, the company delivered a 12.5% increase in operating profit driven by continued demand from several segments for both temporary and permanent space, and a general acceleration of requirements across the digital economy. Goodman could provide the best of both worlds with a small dividend yield of 1.70% and higher share price gains.
The high quality occupants for industrial REITs position them as both reliable ASX 200 dividend shares and potential for share price gains. For investors looking for lower risk companies with consistent cash flows, I would look at industrial REITs as an option.
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Motley Fool contributor Lina Lim has no position in any of the 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 Scott Phillips.
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