High investor demand for dividend yield, against a background of weak equity markets and ultra-low interest rates, can be met by income flows from European listed property companies and particularly REITs, new research from the European Public Real Estate Association (EPRA) shows.
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 with 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 over-achievers in the market, because the prime quality property 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 in the period 2009 to 2010 bottomed out at -19.5%, whereas REITs hit a floor at -11.8% and general equities showed a maximum decline of -24.6%.
Over the long term, 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 45 billion 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 the vast majority (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 Director of Research concluded: "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."