Income from European listed property companies, particularly REITs, can meet high investor demand for dividend yield while equity markets are weak and interest rates ultra-low, said the European Public Real Estate Association.
New research from the quoted property representative body shows that dividend yields from the sector have remained consistently above equities and bond yields, as well as inflation, over the past five years.
Between 2007 and 2011, European REITs generated an average dividend of 5.1%, compared to general equities at 4.1%, government bonds at 3.3%, and average annual inflation in the eurozone of 2.0%.
Maikel Speelman, EPRA analyst and author of the report, said: “While European listed real estate as a whole tends to outperform the major investment asset classes, REITs are the overachievers in the market, because the prime assets they generally own are those most likely to offer long-term reliable income, which leads to healthy cash flows and sustainable dividends.”
Even during the depths of the financial crisis, the vast majority of European listed property firms were able to pay out dividends. The year-on-year drop in the dividend yield paid out by listed real estate companies over 2009-10 bottomed out at -19.5%, whereas REITs hit their floor at -11.8% and general equities showed a maximum decline of -24.6%.
Since 1999 the annual compound dividend growth of European listed property companies as a group has been 3.9%, well above annual compound inflation of 2.1%.
Since 2000, these companies distributed some €45bn in dividends to their investors. REITs tend to pay out higher dividends than non-REITs because of their legislative obligations in national markets to distribute most (up to 100%) of earnings to shareholders. This is in line with most REITs’ income-orientated strategy of offering stable income growth through active property asset management and rotation of their portfolios.
Fraser Hughes, EPRA’s director of research, said: “At a time when pension funds are struggling to cover their liabilities due to low interest rates and all investors are seeing weak returns from investment markets, the attractiveness of the dividend yield on European property stocks in general, and REITs in particular, has rarely been higher.”
