If you want to see how you can make a lot of money from property other than building and selling into a rising market, take a look at Unite Group (LSE: UTG).
The company, billing itself as “the UK’s leading manager and developer of student accommodation,” has seen its earnings per share more than double in the four years from 2013 to 2017. And though that rate of growth is likely to slow, first-half results on Tuesday make it look like 2018 is living up to expectations.
Unite recorded a 15% rise in EPS (with an 11% uplift currently forecast for the full year), as chief executive Richard Smith told us: “We have delivered further increases in our sustainable and recurring earnings and maintained strong cash flows.“
The beauty of that cash flow has been showing though in dividends, which have been boosted from 4.68p per share in 2013 to 22.7p last year. Cover by earnings has come down over that period as the firm moves from its early expansion phase and is starting to look more like a mature cash cow, and that was strengthened by the announcement of a 30% hike to the 2018 interim dividend. That’s slightly ahead of full-year forecasts, but is in line with the company lifting of its dividend payout ratio to 85% of EPRA earnings.
Net cash flow of £46m (up from £38m a year ago) also helped get net debt down a little, from £803m at December 2017 to £770m. But net debt should rise as Unite plans to increase capital expenditure on new investment and development.
My colleague Rupert Hargreaves recently took a look at Unite’s asset valuation figures, but suggested that the firm’s commitment to long-term sustainable earnings is really what it should be valued on. I agree.
Another strong FTSE 250 dividend
If you’re looking for another top dividend payer, Man Group (LSE: EMG) shares have been a bit erratic over the past five years — but we’re still looking at an almost doubling in price over the period.
I reckon the hedge fund manager has got itself into a pretty good shape for the long term, and it looks to me like an investment that can bring in attractive total rewards over the coming decade.
Dividends are only a part of that, with well-covered yields of 5.2% and 5.6% predicted for 2018 and 2019 respectively. On top of the annual cash, Man Group has also been buying back its own shares for some months, after announcing a total of up to $100m to be earmarked for the purpose in April.
That came after a very strong 2017, which resulted in net inflows of $12.8bn and positive investment performance of $10.7bn. And that seems to be continuing into 2018, with the first quarter bringing net inflows of $4.8bn. But negative investment performance of $1.8bn as the quarter was described as offering “a weaker environment for equity markets and momentum strategies.“
But that’s the nature of Man’s hedge fund management approach, and I think investors should ignore performance on a quarter-by-quarter basis as that’s likely to be erratic in the short term — a caution aired by fellow Fool writer Roland Head at the time.
If you can forget short-term market movements and are looking more to building a long-term retirement nest egg, Man is a rare opportunity to invest in this market.