Scentre Group (ASX: SCG) and DEXUS Property Group (ASX: DXS) are two high-yielding ASX REITs to keep an eye on in 2019.
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Diversification is one way in which investors can reduce their overall investment risk.
Putting all of your money into only a few investments can turn out badly if those chosen do not perform to expectations.
The ASX is dominated by our big four banks, BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL), which account for more than 30% of the ASX 200 index (INDEXASX: XJO). This can sometimes leave investors who invest solely via index funds thinking they are well diversified when in reality they are not.
Real Estate Investment Trusts or REITs offer investors access to large property assets. There are many REITs listed on the ASX which invest in various property assets ranging from office buildings, shopping centres, hotels and warehouses, to name a few.
Here are two high-yielding ASX REITs to diversify your share portfolio…
Scentre Group
Scentre Group (ASX: SCG) owns and operates Westfield Shopping centres in Australia and New Zealand. As of the end of the March 2019 quarter, 99.3% of Scentre Group’s portfolio was leased and customer visitation had grown to 535 million annually.
The assets they hold have strong defensive qualities with most of their Westfield centres containing major supermarkets. In more recent times they have made a concentrated effort to increase the level of restaurants and non-retail entertainment within the centres to combat the threat of online retail.
The ongoing migration to online retail is a much-discussed long-term risk to their investments in bricks and mortar shopping centres. For now, at least, management remains bullish, forecasting net rental growth of around 3% for FY19.
With a forecast distribution of 22.6 cents for FY19 Scentre is trading with a yield of 5.8%.
Dexus Property Group
Dexus Property Group (ASX: DXS) invests in commercial property, predominantly office buildings within Australia’s capital cities.
They recently acquired 80 Collins Street in Melbourne’s CBD for $1.09 billion further strengthening their presence in the Melbourne CBD office market.
Whilst there are legitimate concerns of a downturn in the Australian economy which could push up office vacancy rates, I think the commercial property sector is likely to be more resilient in a moderate downturn relative to other property assets.
Dexus is conservatively financed with gearing at around 24% and offers investors a yield of 4% at its current price.
Scentre Group or Dexus: Which Do I Prefer?
Whilst Scentre offers a higher trailing dividend yield, I believe that in the long term online retail will make it very difficult for Scentre to continually increase rents. Therefore, my pick would be Dexus with its portfolio of high-quality commercial property assets.
Having said that, the Dexus share price has had a great run over the past few months so I will be watching it from the sidelines and looking for a pullback before considering buying.
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At the time of publishing, Luke does not have a financial interest in any of the companies mentioned.
