Dividends are likely to become increasingly popular for many investors over the next few years. After a decade of ultra-loose monetary policy, global inflation could be on the cusp of increasing. This could drive demand for stocks with real income returns even higher.
With that in mind, here are two real estate investment trusts (REITs) that could offer high income returns. They also appear to offer excellent value for money, which means that their total returns could be equally impressive.
Reporting on Friday was London and South East office and industrial market specialist McKay Securities (LSE: MCKS). Its trading update showed that it has been able to make good letting progress, with it experiencing a relatively resilient level of demand. This looks set to continue over the near term, with the company having ambitious growth plans that could help to improve its overall financial performance in future.
With a dividend yield of 3.9%, the stock appears to have strong income potential. Dividend growth could also be relatively impressive, with its bottom line due to rise by 7% in the current financial year. Following that, its earnings per share are expected to be 17% higher in 2020 than they are due to be in the 2018 financial year. As such, dividend growth could easily surpass the rate of inflation over the next couple of years.
While the prospects for the London and South East property market remain uncertain due to Brexit, McKay Securities appears to offer a wide margin of safety. It has a price-to-book (P/B) ratio of just 0.8, which suggests that it may be significantly undervalued at the present time. As such, its total return potential seems to be high.
Also offering an impressive income outlook within the REIT sector is British Land (LSE: BLND). The company has a solid track record of earnings growth, with its bottom line rising in each of the last three years. This has enabled its dividend growth rate to beat inflation during the period, with the stock now having a dividend yield of 4.9%. This is likely to remain above inflation even if the outlook for the UK economy becomes increasingly uncertain.
With British Land having significant exposure to London, it may experience a difficult period as Brexit talks continue. Demand for property in the area may come under pressure – especially if talks between the UK and the EU do not progress smoothly. However, with a number of prime properties in its portfolio, it appears to have a solid growth outlook for the long run.
Since British Land has a P/B ratio of 0.65, it appears to have a significant amount of upside potential. In fact, investors may have already priced in possible risks associated with Brexit. As such, it could provide capital growth potential as well as offering one of the higher yields in the FTSE 100 at the present time.
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Peter Stephens owns shares in British Land. The Motley Fool UK has recommended British Land Co. 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.