Yahoo Finance Questor: football aside, the Germans still win in the battle for reliable sources of income
It’s fair to say that the defenestration of Lloyds Banking Group from this portfolio in November 2019 and its replacement by Sirius Real Estate, which invests in German business parks, was one of our better decisions.
We mentioned our inclination to avoid the big British banks in Wednesday’s column and shares in Lloyds stand 16.7pc below the price at which we sold them. Shares in Sirius, by contrast, have gained 51.3pc since our tip.
Like most other stocks Sirius was clobbered in the coronavirus panic of February and March last year and it took until November to recover those losses. But since then it has been uphill all the way to a record high of 113.2p reached last week.
Sirius’s full-year results published last month included only good news as far as this column could see. But let’s start with the measure of most immediate interest to income investors: the dividend. Sirius increased the full-year payment by 6.4pc to 3.8 euro cents. The full-year divi was 2.92 cents when the shares listed in March 2017 and it has risen steadily since then.
At the current exchange rate and share price the yield is 2.9pc but relative to the price at which we added the shares to the portfolio it is 4.4pc. The payment is also well covered by earnings as the ratio of the div to profits was 65pc in the year to March. If Sirius paid all its profits to shareholders the yield would be 6.8pc at our purchase price.
Now the profits of any listed company are based on the amount it invoices and not the amount it receives, so in the case of a property company during the pandemic the degree to which rental invoices are actually paid takes on special significance. Sirius received 98.2pc of rents due in the period.
It attributed this excellent figure to the ability of its “experienced cash collection team” to “work closely with its tenants in assisting them to access state support and support business continuity while ensuring contractual obligations continued to be met”.
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Other positive developments were a 3.5pc increase in “like-for-like” average rental rates to €6.17 (£5.31) per sq metre, a rise in occupancy from 85.2pc to 87pc and a 15pc increase in net asset value on an “adjusted” basis. Annual rental income rose by 7.6pc to €97.2m as a result of organic growth and the net effect of acquisitions and disposals.
There was an 18.5pc rise in the number of inquiries and a 13pc sales conversion rate.
Andrew Coombs, the chief executive, said the results provided “a clear demonstration of our ability to utilise our operating platform in all market conditions”.
He added: “We have ended the year with a strong balance sheet which will allow us to take advantage of acquisition opportunities as they arise and continue to grow income and capital values through selective investment.”
In this column’s view, banks such as Lloyds are no longer a reliable enough source of income for investors who depend on dividends, not least because they are so tightly hemmed in by regulators. We must look elsewhere for resilient income, and property is one of the best options. So far at least Sirius has lived up to our hopes. Hold.
Questor says: hold
Ticker: SRE
Share price at close: 112p
Update: Urban Logistics Reit
This property fund, added to the portfolio in April last year when the virus laid waste to dividends from some of our individual stocks, has also been growing. Its annual results published last month reported a 145pc rise in the (gross) value of its portfolio to £508m, while its rental income grew by 88pc to £22.9m.
Some of this expansion has been funded by taking on debt, some by sales of new shares. The trust said earlier this week that it had identified “a strong pipeline of attractive properties” that it wanted to buy so it announced a further share sale, in which private savers can take part.
It said the new assets would initially yield 6.1pc and it expected them to be “accretive to earnings per share from the first full financial year” after the raising of the funds, in other words in the year to March 2023.
Readers can buy new shares at a fixed price of 155p via the PrimaryBid platform. News of the share sale sent the market price down from 163.5p to 157p at last night’s close, so either way the shares can now be picked up more cheaply.
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