As a ‘shares guy’ I’m always sceptical when a ‘property guy’ tries to convince me about this amazing new property or a sector that is currently undervalued. However, I’ve always had a soft spot for commercial property – offering above-average returns and secure long-term contracts commercial property is a great way to diversify any portfolio. Underpinned by Australian icon Bunnings Warehouse BWP Trust (ASX: BWP) is one of the best in the business.
Investing in residential property has quickly developed into Australia’s favourite pastime, however, commercial property is still underrepresented in mainstream media and the benefits are not generally understood. Key factors I look for in commercial property investment are respectable tenants and above average dividend yields – lucky for me BWP has both in spades!
BWP’s Dividend
Over the past 10 years, BWP has delivered an outstanding market-beating return of 13%. A big part of this return is the attractive cash dividend/distribution. At the current share price, BWP is expected to yield between 5% and 6%. To me, that’s a lot better than residential property and a term deposit!
A Quality Tenant
The interesting part of this story is that 91% of BWP’s rental income is received from ASX behemoth Wesfarmers Ltd (ASX: WES), the owner of Bunnings Warehouses. Bunnings is a perfect tenant – it has a strong brand name, increasing customer base and it’s a rapidly expanding company.
Tell me the bad stuff!
Like any investment, there are risks.
With most of the income coming from the one source the future outlook of BWP is heavy influenced by the management of Wesfarmers and the direction they take with Bunnings – the fear of the unknown is real and should be factored in when considering any investment in BWP.
Another key factor is the current hysteria around the Australian property market, currently these are isolated in the residential sector, but it does have the potential to spread into the commercial space. Any negative sentiment with commercial property can result in a quick sell off for BWP.
Why I Own BWP
BWP Trust offers everyday investors exposure to not only a growing sector but it is an all-star of Australian business. It has the luxury of long term leases, an attractive dividend yield and large runway for expansion. BWP takes pride of place in my portfolio and I look forward to seeing the company grown and prosper for many years to come.
Free Report: 3 Proven Dividend + Growth Shares
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At the time of writing, Anthony owns shares of BWP Trust.
