With a 7% dividend yield, is this ASX REIT too good to ignore?

This ASX REIT might be a way to achieve stable income growth, in my view.

| More on:
Magnifying glass in front of an open newspaper with paper houses.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The HomeCo Daily Needs REIT (ASX: HDN) unit price has not performed well recently, rising just about 3% in the past year.

In fact, its current price is more than 5% below its initial public offering (IPO) price of $1.33 in November 2020.

Created with Highcharts 11.4.3HomeCo Daily Needs REIT PriceZoom1M3M6MYTD1Y5Y10YALL27 Nov 20208 Aug 2024Zoom ▾Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '2420212021202220222023202320242024www.fool.com.au

This real estate investment trust (REIT) may have lost investor interest during the surge of growth shares in recent times. But as the global stock markets jitter, is now a good time to reconsider this cheap ASX REIT?

Let's find out!

Stable business

HomeCo Daily REIT invests in neighbourhood retail and large-format retail assets. Its tenants include household names like Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Wesfarmers Ltd (ASX: WES).

Having such solid tenants, the ASX property company boasts more than 99% occupancy rate and rent collection.

HomeCo Daily Needs reported robust numbers in 1H FY24, with its property net operating income (NOI) increasing 4% from a year ago to $136.1 million. Its net tangible asset (NTA) was $1.44 per unit at the end of December 2023.

More recently, in June 2024, the company reported a 2% increase in its NTA as it booked a valuation gain. It also reaffirmed FY24 guidance for distribution per unit at 8.3 cents.

HomeCo Daily Needs CEO Sid Sharma highlighted the company's resilience, saying:

The positive revaluation gains for the half reflects HDN's high exposure to defensive and non-cyclical expenditure and megatrends driving tenant and customer demand for our assets.

Whilst the existing asset base is generating strong underlying net income growth, HDN's accretive development pipeline continues to create additional value for our unitholders.

Attractive valuations

The June update implies that its NTA is now at about $1.46 per unit, up 2% from its value in December 2023. Using today's unit price, this represents a price-to-book value of 0.84.

In other words, the REIT is trading at about a 16% discount on the value of its asset holdings, which seems attractive.

Using the company's DPS guidance of 8.3 cents for FY24, HomeCo Daily Needs currently offers a distribution yield of 7%.

Morgans also noted the stability and valuation merit of HomeCo Daily Needs, as my colleague James highlighted. Analysts at Morgans said:

The portfolio has resilient cashflows and continues to be a beneficiary of accelerating click & collect trends. +80% of tenants are national and ~75% of tenants offer click & collect reinforcing the importance of assets being able to support 'last mile logistics'.

Sites are also in strategic locations with strong population growth (+80% metro). HDN offers an attractive distribution yield and the development pipeline provides growth opportunities.

I tend to agree with the statement above. HomeCo Daily Needs can be a good addition to passive-income-focused investment portfolios at current prices, in my view.

The HomeCo Daily Needs REIT unit price was up 0.4% to $1.22 at the close of trading on Thursday.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended HomeCo Daily Needs REIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on REITs

Image of a shopping centre.
REITs

Capitalising on interest rate cuts: Should I buy an ASX REIT?

REITs tend to benefit more than most from interest rate cuts.

Read more »

Magnifying glass in front of an open newspaper with paper houses.
Real Estate Shares

5 ASX stocks making Macquarie's top picks in the listed property sector

Macquarie expects the future is looking brighter for these ASX real estate stocks. But why?

Read more »

ASX 200 shares broker downgrade origami paper fortune teller with buy hold sell and dollar sign options
REITs

Is the ASX Charter Hall Retail REIT a buy, hold, or sell, according to Macquarie?

The top broker has just released a new note about this popular ASX real estate investment trust.

Read more »

Two IT professionals walk along a wall of mainframes in a data centre discussing various things
REITs

Goodman begins building its first U.S data centre

This blue chip is making big steps with its data centre plans.

Read more »

Magnifying glass in front of an open newspaper with paper houses.
REITs

Real estate making a comeback? 2 ASX REITs rated as top buys

Is now the to look at ASX real estate names?

Read more »

a man with hands in pockets and a serious look on his face stares out of an office window onto a landscape of highrise office buildings in an urban landscape
REITs

Why this could be a great ASX share sector to invest in right now

This could be a smart play right now.

Read more »

Smiling man working on his laptop.
REITs

Upgrades: Macquarie turns bullish on these ASX REITs

Has the sector found a bottom?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
REITs

2 ASX 200 REITs surging after posting H1 FY25 results

Investors seem to like what they see from these 2 specialised REITs.

Read more »