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Is Vicinity Centres (ASX:VCX) a top ASX dividend share?

fingers walking up piles of coins towards bag of cash signifying asx dividend shares
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The Vicinity Centres (ASX: VCX) share price has slid lower this morning in a slow start to the week for the Aussie real estate investment trust (REIT). However, for investors like me that are hunting for a top ASX dividend share right now, could Vicinity be the answer?

What does Vicinity Centres do?

Vicinity Centres is an Aussie retail REIT with a market capitalisation of more than $6 billion. REITs must pay out at least 90% of their earnings to investors each year. That makes many top property groups a strong buy for those chasing yield in the current interest rate environment.

Vicinity Centres owns and operates $23.6 billion in real estate assets around the country, mostly in shopping centres. That includes flagship centres like Chadstone in Melbourne and Chatswood Chase in Sydney.

Is Vicinity a top ASX dividend share?

In normal times, I’d back Vicinity Centres in as a solid ASX dividend share to buy. Retail shopping centres, particularly those that Vicinity owns and operates, have historically been cash cows.

However, the coronavirus pandemic has changed all of that. Online retail sales have surged but restrictions have hampered the retail REITs like Vicinity and Scentre Group (ASX: SCG).

At the time of writing, Vicinity Centres shares are yielding a tidy 11.9%. Any yield-seeking investor would rightly take notice of a double-digit return right now, but it’s not that simple.

Given the current environment, I think we’re likely to see lower Vicinity Centres earnings and therefore lower dividends. That means Fools should be wary of falling into a value trap, where a stock looks attractive but only because its share price has been falling for a reason.

Foolish takeaway

I think Vicinity Centres will continue to be a top ASX dividend share. While, in my view, there will be a shake-up in retail real estate, Vicinity still holds prime real estate across the country.

The big question for investors is how low earnings will go and how quickly they can rebound. Despite strong yield and a 4.4x price to earnings (P/E) ratio, I wouldn’t be rolling the dice on the Vicinity Centres share price just yet.

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Returns As of 15th February 2021

Motley Fool contributor Ken Hall 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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