Cheap and robust property trust pays a 7.5% dividend: MIDAS SHARE TIPS (2024)

The UK produces more than 25 billion pints of milk a year, mostly sold in plastic bottles in supermarkets.

Lids are made separately – both coloured and transparent – and Doncaster-based Silgan Closures is one of the leading producers in the country.

Silgan makes its wares in an industrial unit owned by Custodian Property Income Reit, a business resolutely focused on delivering attractive annual income to shareholders.

Custodian Property Income is run by property veteran Richard Shepherd-Cross, who qualified as a chartered surveyor in the 1990s and has been involved in the sector ever since.

Having helped to set up Custodian in 2009, he listed the business in 2014 with £100 million worth of property and a share price of £1.

Today, Custodian’s assets are valued at £590 million but the shares are below 80p, down from £1.19 before the Covid-19 pandemic.

The decline seems overdone and should reverse, as sentiment towards the property industry improves and interest rates continue to fall.

In the meantime, shareholders are being handsomely rewarded through dividends. The group paid out 5.8p last year – including a 0.3p special – and Shepherd-Cross is targeting 6p for the 12 months to March.

That puts Custodian shares on a juicy yield of more than 7.5 per cent, comfortably exceeding bank and building society savings rates.

The generous payouts are no accident. Shepherd-Cross firmly believes that the main purpose of property firms is to generate reliable income for investors.

That is what Custodian was established to do and that is what he strives to deliver. Results to date are encouraging, particularly given the tough market conditions in recent years.

The dividend rose steadily between 2014 and 2021, dipped slightly in the aftermath of Covid but has climbed consistently since and is expected to continue in that vein.

Unlike many real estate firms, Custodian prides itself on a diverse portfolio, with 155 properties spread across the country.

Several are let to more than one tenant, giving it more than 300 tenants in total, in sectors ranging from out-of-town retail parks to small industrial sites.

Diversification means that no single tenant is responsible for more than 1.5 per cent of the rent roll – a strategy designed to reduce risks and boost returns across economic cycles. So it has proved.

Despite the depressed share price, Custodian has outperformed peers since listing, through a combination of dividend payments and the stock price.

Investors who subscribed for shares in 2014 will have made 36p for every £1 invested, compared with a return of just 20 per cent from listed property stocks more broadly over the same period.

While Shepherd-Cross is pleased to have outgunned competitors, he is keen to deliver significantly better results for shareholders in the coming years.

Demand for space is rising across Custodian’s portfolio – even in the office sector, which was written off by many when working from home took off during the pandemic.

Fortunately, its properties are well located in city centres and business parks, and they cater to modern ways of working with trendy layouts and a good sprinkling of amenities.

Retail parks are another area of growth, from Duloch Park in Dunfermline to Coypool, Plymouth. Tenants are blue-chip, including B&M, Matalan and Homebase alongside other leading chains, expanding in out-of-town malls.

Industrial tenants account for the largest slice of Custodian’s portfolio, from manufacturers to storage businesses to logistics firms. There has been precious little construction in this area over recent years, so space is in short supply and demand is robust.

Rents rose 5.6 per cent last year across the group and are expected to increase at an even faster pace in future.

Recent leases have risen sharply when tenants have come to renew, and more such deals are forecast over the next few years.

Midas verdict: Property firms have been through the mill but the tide is turning and sharp investors should reap the benefits. Custodian has shown that it can deliver through thick and thin, dividends are a big draw and Shepherd-Cross is determined to do even better by shareholders from here on in. At 79p, the stock is a buy.