Its no secret that investors are still chasing high dividend-yielding stocks to maximise their returns in the current environment of low interest rates and if the recent global trend is anything to go by, Australian investors can expect interest rates to be lower for longer.
Although it is tempting to select stocks with the highest dividend yields on offer, investors need to take into account the sustainability of the dividend and the outlook for the company in question.
With that in mind, Stockland Corporation Ltd (ASX: SGP) is a high dividend-yielding stock that investors could consider adding to their portfolios at the right price:
Background
Stockland is one of Australia's largest diversified property groups with a market capitalisation of over $10 billion. It operates a number of business portfolios including retail, residential, logistics, office and retirement living. The three most important portfolios for Stockland are outlined below:
Retail Portfolio
Stockland's retail portfolio is perhaps the most well known amongst investors and includes 41 branded shopping centres throughout Australia worth more than $5.7 billion. The portfolio makes up about half of the total group's value and relies heavily on growing retail sales for increased revenue.
Pleasingly for Stockland, the most recent comparative retail sales data showed that total sales increased by 3.6% and this should be supported as lower mortgage rates and fuel costs flow through to consumers.
A major risk for Stockland is that future rent increases will be harder to implement as online sales take a bigger share from the total retail sector. In order for existing tenants to remain in its shopping centres, it is unlikely that Stockland will be able to increase rents at historical rates.
Residential Portfolio
Stockland's residential portfolio is expected to be a source of good growth for the company as strong demand for properties and higher property prices flow through to the bottom line.
The group has a pipeline of more than 78,000 lots with an end-market value of nearly $20 billion. The group announced that it had the strongest year to date in over five years when it updated the market in May and it will be interesting to see if the momentum in this portfolio has continued when Stockland releases its full year results in August.
Retirement Living Portfolio
One portfolio that some investors might not be aware of is Stockland's retirement living portfolio. Although it is still in its early stages, Stockland is quickly becoming a leading operator and developer in this sector. In June, the group announced it had acquired a portfolio of eight retirement villages in South Australia that increased its portfolio to more than 9,500 homes and apartments with a value of more than $1.1 billion.
The group also has a pipeline of more than 3,000 units with 360 of these currently under construction. The success of other listed retirement village developers has proven that demand for these properties is high, and is expected to remain strong as the number of retirees is expected to significantly increase over the next five to ten years.
Outlook
Stockland is forecasting earnings per share growth (EPS) of 7-7.5% for FY15. Investors will need to wait until the full year results are released in August for further guidance but analysts are forecasting a similar EPS growth rate for FY16.
Valuation
At the current share price, Stockland shares are trading on a price-to-earnings ratio of around 16.5. The current dividend is expected to remain at 24c per share and this will give investors an unfranked dividend yield of around 5.7%.
Foolish takeaway
Although Stockland is expected to produce a positive earnings report in August, I think the shares are fairly valued at the moment. Earnings per share growth is expected to be flat to moderate over the medium term and the current share price does not leave enough upside potential in my opinion.
The current dividend yield looks attractive but investors need to take into account that it is unfranked and this will have a significant impact on after tax returns.
Investors could be better off by looking at The Motley Fool's top dividend stock for 2015-2016. It is fully franked and has been hand-picked by the experts!
