The Motley Fool

Unite Group plc is one dividend stock I’d buy, but I’d avoid its close peer Hammerson plc

Student accommodation is big business, something shareholders of Unite (LSE: UTG) are well aware of. Over the past five years, the company’s earnings per share have exploded higher from 9.8p in 2012 to 27.7p for 2016, and analysts have pencilled in further growth to 29.6p for 2017. Off the back of this earnings growth, the company’s dividend payout per share has risen from 4p to 22.1p, an increase of 450%. 

For the first half of 2017, growth has continued. According to Unite’s interim results, which were released this morning, operating income rose to £70.7m from £66.3m thanks to a 6% increase in rental income. Pre-tax profit declined from £122.8m in the period last year, to £83.9m. Management blamed this decline on a “lower level of revaluation surplus as a result of yield compression in 2016.”

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Further growth 

Investors shouldn’t concentrate on Unite’s reduced pre-tax profit, which is a direct consequence of one-off factors. Instead, shareholders should focus on its outlook. 

Within today’s figures, management proclaimed that the company’s development pipeline of over 8,500 beds, combined with steady rental income growth, could add 14p to 16p to earnings per share over the next few years. That translates into earnings growth of around 50%. Assuming that the company’s dividend payout ratio remains stable at around 1.5 times earnings per share, the shares could pay out 31p in dividends per annum for a yield of 4.5% based on the current share price. 

One-off safety charges 

Unfortunately, alongside the good news contained within today’s update, the company also issued a warning regarding some of the cladding used on its accommodation blocks. 

Following the Grenfell Tower tragedy, the company tested samples of aluminium composite material cladding from its 132 properties and results have indicated six of these samples did not meet the required standards. Management is planning to conduct further tests to assess whether or not these buildings need to be re-clad and if so, estimates it will cost between £500,000 and £1.5m in lost rent as well as £2m in construction costs. 

Still, despite this blip, as a long term investment, Unite remains attractive. 

High yield, dull outlook

Based on its bright outlook, Unite is one dividend stock I’d buy, but I’d avoid the company’s property peer Hammerson (LSE: HMSO)

Shares in Hammerson support a dividend yield of 4.4%, but over the past five years, the company’s growth has been sluggish with earnings per share expanding by only a third and the dividend increasing by 47%. Today the company announced a 5.9% increase in its interim dividend share, off the back of a 75% increase in basic earnings per share. However, rent for the six months ended June 30 only expanded by 9.7% and adjusted profit increased by 6%. Adjusted earnings per share, which exclude one-off factors such as gains from property revaluation, grew by 5.6 % year-on-year. 

For 2017 as a whole, City analysts expect the firm’s earnings per share to rise by only 6% followed by growth of 5% in 2018. The company’s dividend per share is projected to grow at a similar rate. All in all, compared to Unite, Hammerson’s outlook is relatively dull.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.