Real estate investment trust (REIT) Tritax Big Box (LSE: BBOX) has released half-year results today that include a 3.3% increase in dividends. They now stand at 3.1p per share for the half year and the company is on track to hit its target of 6.2p per share for the full year. This puts it on a yield of 4.5%, which is around 1% higher than the FTSE 100’s yield.
Encouragingly, Tritax’s dividend is fully covered by its adjusted earnings and its business performance remains sound. Its portfolio is 100% let or pre-let and it has further diversified its portfolio during the first half of the year via the purchase of three properties. This reduces its overall risk profile since it’s now better diversified from both a geographical and tenant-type basis.
Tritax Big Box’s portfolio valuation increased by £41.1m during the period, which represents a 2.8% valuation gain. Looking ahead, further gains in this respect could be somewhat limited since the outlook for the UK economy remains very uncertain. Commercial property prices have already come under pressure, with the FTSE EPRA/NAREIT UK REITs total return in the first six months of the year being minus 11.7%.
In terms of its stability, Tritax Big Box lacks appeal when compared to a utility company such as United Utilities (LSE: UU). The latter has a very resilient and robust business model that makes its dividend payments ultra-reliable. Certainly, United Utilities faces a somewhat uncertain near-term future, with the liberalisation of the water services market expected to take place in 2017. But with it being anticipated for some time, the reality is that United Utilities is well-prepared and it’s unlikely to cause a major change to its medium-to-long term performance.
Of course, United Utilities has a lower yield than Tritax. It currently yields 4% but its dividends are not only more resilient, they could also rise at a faster pace than those of Tritax if the UK economy experiences a challenging period. This seems likely following the reduction in growth outlook by the Bank of England.
Risky but rewarding
In terms of yields, few stocks are able to beat Shell (LSE: RDSB) at the moment. It yields a whopping 7.3% and while dividends aren’t due to be covered this year, they’re forecast to be covered by profit next year.
Beyond that, Shell has excellent dividend growth potential. The integration of the recently acquired BG asset bases is expected to lead to significant synergies and Shell’s free cash flow is forecast to rise from last year’s $3.7bn to as much as $25bn by 2020. If this is achieved, Shell’s dividends are likely to soar.
However, between now and then the oil price could come under pressure. This would severely dampen Shell’s dividend outlook and shareholder payouts could be slashed. As such, for risk-averse investors, United Utilities is a better choice, but for investors who are less risk-averse, Shell’s 7.3% yield and potential rise in free cash flow make it a star income play. Either way, both have more appeal than Tritax Big Box, which faces an uncertain future and yields only 0.5% more than United Utilities.
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Peter Stephens owns shares of Royal Dutch Shell and United Utilities. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.