With an almost 7% dividend yield, is this ASX 200 share a buy?

This business offers significant passive income potential.

| More on:
Modern accountant woman in a light business suit in modern green office with documents and laptop.

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

In my view, the S&P/ASX 200 Index (ASX: XJO) share Charter Hall Retail REIT (ASX: CQR) could provide a pleasing mixture of passive income and potential capital gains. At the current valuation, the business could pay a distribution yield of close to 7%.

For investors who haven't heard of this real estate investment trust (REIT), it describes itself as the leading owner of property for convenience retailers, including shopping centres and service stations.

It may not be the most exciting investment idea out there, but I think it offers defensive earnings at an uncertain time. Plus, the outlook for potential interest rate cuts could lead to a sizeable boost for both rental profits and property valuations. Combined with its large dividend yield, it could be a dark horse idea to outperform in the next 12 months.

Defensive earnings

Its locations are essential for the communities they serve, and I can't see that changing in the next five years. In my view, tenants like supermarkets and fuel retailers will want to continue to serve customers.

The business said in its FY25 first-half results that its shopping centre convenience retail portfolio occupancy remained stable at 98.7%, demonstrating good resilience for its rental income.

The ASX 200 share reported in HY25 that its like-for-like net property income (NPI) growth was 3%, with shopping centre like-for-like NPI growth of 2.5%. The business is seeing growth from specialty retailers.

With the ongoing relative strength of the Australian economy and an expected reduction of interest rates this year, things are looking positive for retail spending to remain strong.

Potential boost from interest rate cuts

REITS have been some of the hardest-hit businesses in the last three years because of a higher interest rate, which has increased the cost of debt (hurting rental profits), and it's also acting as a headwind for property prices.

But, there are now expectations that rates could be cut multiple times over the rest of 2025.

If cuts happen, I think Charter Hall Retail REIT could be a significant beneficiary as its debt would become less burdensome, and I'd expect the ASX 200 share's portfolio value to benefit from that.

Distribution yield

The business is expecting to pay an annual distribution of 24.7 cents per unit in FY25, the same as FY24.

At the current Charter Hall Retail REIT unit price, that translates into a distribution yield of 6.7%.

That's significantly better than what we can get from a term deposit. I'm expecting medium-term distribution growth from a combination of rental increases and, seemingly, rate cuts, which could improve rental profits.

Should you invest $1,000 in Charter Hall Retail Reit right now?

Before you buy Charter Hall Retail Reit shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Charter Hall Retail Reit wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Tristan Harrison 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 positions in and has recommended Charter Hall Retail REIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

These high-yield ASX dividend shares smash term deposits

Analysts think these shares could be top picks for Aussie income investors.

Read more »

children and teacher in childcare education setting
Dividend Investing

1 ASX dividend stock down 30% I'd buy right now

I think this business offers investors both income and potential capital growth.

Read more »

Two funeral workers with a laptop surrounded by cofins.
Dividend Investing

Why I think these 2 ASX dividend shares are ideal for income investors

These stocks offer pleasing income.

Read more »

A mature aged man with grey hair and glasses holds a fan of Australian hundred dollar bills up against his mouth and looks skywards with his eyes as though he is thinking what he might do with the cash.
Dividend Investing

3 ASX ETFs to boost passive income

These 3 ASX ETFs offer particularly attractive yields.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

The easy way to earn $1,000 a month in dividends from the ASX

This is an easy way to generate monthly income from the share market.

Read more »

A retiree relaxing in the pool and giving a thumbs up.
Dividend Investing

An 8 percent dividend stock paying cash every month

Dreams really do come true on the ASX.

Read more »

Excited couple celebrating success while looking at smartphone.
Dividend Investing

Buy these cheap ASX dividend shares for big yields

Let's find out which shares are being tipped as buys for income investors by analysts.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

Overinvested in NAB? Here are two alternative ASX dividend stocks

Additional stocks could be an appealing option to improve income diversification.

Read more »