REIT exposure and share issues

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Question: I have noted that Dexus (DXS) is part of your income portfolio. Do you recommend that long term as a yield stock? What are your thoughts about Westfield (WFD) as part of a yield portfolio in view of earnings in US dollars. I would prefer to have only one A-REIT stock in a portfolio of 20.

Answer (By Paul Rickard): Dexus (DXS) and Westfield (WFD) are very different beasts – the former a domestically focused commercial property trust – the latter, an internationally focused developer of retail shopping malls.

If income is the driver, I would stick with Dexus. If growth is the driver, I would go with Westfield.

I am not inclined to be overweight this sector (it has had a great run, but getting expensive) – so I would be fairly selective in how I approach it.

Question 2: What is the effect of share issues, such as the one by Challenger (CGF) in September? Is my simple-minded maths correct – does a 10% increase in the number of shares on issue translate back into a 10% decrease in share price and dividends? Correspondingly, does a share buy-back, such as the recent Telstra (TLS) buyback, improve the price and dividend? If so by how much?

Answer (By Paul Rickard): Yes a 10% increase in shares will generally translate to a 9% decrease in dividend, and depending on the issue price of the new shares, some decrease in the share price. I can’t tell you exactly because the company you have mentioned hasn’t undertaken this form of transaction.

The reverse is true of a buyback – dividends should increase and in theory, so should the share price.

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