INVESTING IN PROPERTY STOCKS
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.