IN­VEST­ING IN PROP­ERTY STOCKS

Finweek English Edition - - FEEDBACK - Read­ers’ views are edited and pub­lished at the dis­cre­tion of JOHN KAYE SI­MON BROWN Views do not nec­es­sar­ily re­flect those of the pub­lisher.

WRITES VIA EMAIL: I am in­ter­ested in in­vest­ing in prop­erty stocks but am averse to do­ing so through an ac­tively man­aged unit trust due to their high cost struc­tures, or through a pas­sively man­aged in­dex fund such as SAPY (which tracks the FTSE/JSE SA Listed Prop­erty In­dex), due to its large mix of stocks, in­clud­ing poor per­form­ers.

My ob­jec­tive is to cre­ate a small port­fo­lio (maybe four or five stocks) which will pro­vide both growth and a rea­son­able and re­li­able in­come stream. Can you ad­vise me as to what se­lec­tion cri­te­ria I should use in se­lect­ing ap­pro­pri­ate stocks, and should I be look­ing at earn­ings yield or div­i­dend yield as be­ing rep­re­sen­ta­tive of the in­come that I will re­ceive?

RE­SPONDS: Prop­erty re­ally is about lo­ca­tion, so buy prop­er­ties that are well si­t­u­ated: Cap­i­tal & Coun­ties (whose prop­er­ties in­clude the mixed-use es­tates Covent Gar­den and Earls Court in Cen­tral Lon­don), Hyprop (its re­tail as­sets in­clude Rose­bank Mall in Johannesburg and Canal Walk in Cape Town) and Growth­point (whose port­fo­lio in­cludes V& A Wa­ter­front in Cape Town and the 100 Grayston of­fice build­ing in Sand­ton) all come to mind.

Div­i­dend yield is im­por­tant as that’s the cash you’ll be paid ev­ery year. You should also keep a care­ful eye on the growth in div­i­dends. As rentals are typ­i­cally fixed for a few years, the listed com­pa­nies give fairly de­cent guid­ance as to ex­pected growth in div­i­dends go­ing for­ward.

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