The performance of different US asset classes over the past 15 years is shown on the table below. As real estate investment trust (REIT) investors it clearly caught our eye that US REITs have topped the table in eight out of the last 15 years, and were in the top three in 10 of the 15 years against nine asset classes. Not bad!
Performance of various US asset classes over the last 15 years
REITs have benefited from falling bond yields over this period and the abundance of cheap credit in the mid-2000s. However, their ability to offer attractive and growing dividend yields has also been key to their superior performance. As the chart below shows, since the onset of the ‘modern REIT’ era in 1991/92, REITs have grown their dividends at a compound annual rate of 7.6%, well in excess of annual CPI inflation of 2.4%.
US equity REITs dividend growth versus CPI inflation, 1992-2013
Today, in the fund’s US REIT universe, we forecast an equally weighted dividend yield of 4.2%*. With projected cash flow growth of 7-8% and increasing payout ratios, we forecast high single to low double-digit dividend growth from the REITs in 2014 and 2015.
While we would not necessarily expect REITs to repeat their consistent chart-topping investment performance of the past, this high and growing income stream remains key to the REIT investment thesis for the years ahead and leaves the sector well placed in the current ‘lower for longer’ yield environment.
Within the Henderson Horizon Global Property Equities Fund, we currently have a 50.4%** allocation to the US, and continue to find attractive bottom-up opportunities.
*Yields may vary and are not guaranteed
**As at 31 July 2014
These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
