European REITs meet demand for dividend yields: EPRA

Strong investor demand for dividend yield can be met by income flows from European listed property companies, particularly REITs, new research from the European Public Real Estate Association (EPRA) shows.

Dividend yields from the sector have remained consistently above equities and bond yields - as well as inflation - over the past five years, according to EPRA's findings. Between 2007 and 2011, European REITs generated an average dividend of 5.1%, compared with general equities at 4.1%, government bonds at 3.3%, and average annual inflation in the eurozone of 2.0%.

'While European listed real estate as a whole tends to outperform the major investment asset classes, REITs are the over-achievers in the market, because the prime quality property assets they generally own are those most likely to offer long-term reliable income, which leads to healthy cash flows and sustainable dividends,' said Maikel Speelman, EPRA analyst and author of the report.

Even during the depths of the financial crisis, the vast majority of European listed property firms were able to pay out dividends, the research found. The year-on-year drop in the dividend yield paid out by listed real estate companies in the period 2009 to 2010 bottomed out at -19.5%, whereas REITs hit a floor at -11.8% and general equities showed a maximum decline of -24.6%. REITs tend to pay out higher dividends than non-REITs because of their legislative obligations in national markets to distribute the vast majority (up to 100%) of earnings to shareholders.

Fraser Hughes, EPRA director of research concluded: 'At a time when pension funds are struggling to cover their liabilities due to low interest rates and all investors are seeing weak returns from investment markets, the attractiveness of the dividend yield on European property stocks in general, and REITs in particular, has rarely been higher.'