Only a few months ago, City analysts were claiming that the price of oil would hit $100/bbl by the end of the year, as oil producers struggled to keep up with demand.
Unfortunately, for companies like BP (LSE: BP) this scenario is now unlikely to play out as it seems that the oil bear market has returned. After President Trump voiced his support for a low oil price two weeks ago, the price of Brent crude has plunged, falling below $60/bbl, down more than $25/bbl in just two months.
Beating the market
Amid the sell-off, shares in BP have remained relatively resilient, falling by around 13% since the beginning of October. I believe the reason why investors have not rushed to dump the stock is because over the past three years, the group has proven that it can weather low oil prices. The changes the company has made to its business model since 2014, should protect it against the market volatility.
That said, even the small decline in the share price has been enough to send the dividend yield up to 5.9%. The company’s total shareholder yield, which includes money distributed to investors via share buybacks, is just over 6%.
But is this yield worth buying or is retail investment trust Newriver REIT (LSE: NRR) a better investment for your portfolio?
The first thing that stands out about Newriver when compared to BP is the company’s yield. At the time of writing, the shares support a dividend yield of 9.6%. As a retail investment trust, Newriver is required to distribute 90% of its earnings from property to investors as a dividend to maintain its advantageous tax treatment.
This requirement means the dividend can be volatile as the company is continuously paying out as much as it can afford. If income falls, so will the dividend. It seems the market is worried that the group, which owns a portfolio of leisure properties and shopping centres, will suffer from falling rents and bankruptcies. The dividend may be cut as a result.
Some cracks are starting to show. Occupancy of the company’s retail property portfolio declined to 96.2% from 96.5% between March and September of this year. Pub occupancy dropped from 99% to 98.6%. Like-for-like footfall across the trust’s shopping centres declined by 1.9%, and like-for-like net income across the retail portfolio decreased by 0.5%.
Still, despite these negative data points, management increased the company’s dividend per share by 3% at the halfway point, although this is only “77% covered as our disciplined approach has meant capital is not yet fully deployed in anticipation of future acquisition opportunities.“
As well as the company’s extensive portfolio of retail property, I am also worried about Newriver’s concentrated exposure to the UK. Compared to BP, which has an empire spanning the globe, the business seems overly exposed to just one country.
The bottom line
Considering the above, I would buy BP over Newriver as an income investment. While I do like what Newriver has to offer, the 6% dividend yield from a global oil giant seems, in my opinion, to be the safer investment.
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Rupert Hargreaves owns no share 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.