This 6%+ yielder still looks like a great dividend stock

Crest Nicholson
Crest Nicholson

With the stock market trading near record highs, it's tough to find dividend stocks trading at reasonable valuations. You can find some in sectors that are exposed to the property market, however, as there are many attractively priced real estate investment trusts (REITs) and housebuilding companies. With this in mind, I'm taking a look at two which have caught my eye with their high yields.

Impressive dividend growth

NewRiver REIT (LSE: NRR) is a property investor, which owns and manages a mix of shopping centres, retail parks, high street properties and leisure assets. It focuses on commercial property which have convenience or community appeal, with a preference on higher-yielding, but low-risk assets.

The REIT has been an impressive dividend grower in recent years, with regular quarterly payouts rising by a compound annual growth rate (CAGR) of 7.3% over the past three years. With the company expected to pay a total dividend of 21p this year, NewRiver has an expected dividend yield of 6.2% at its current share price of 338p.

NewRiver's dividend growth track record is certainly attractive, but the stock has been under pressure from recent weak investor sentiment towards the UK commercial property sector. With the uncertain macro backdrop, there are increasing concerns about the company's ability to deliver positive valuation growth and growing rental income in the medium term.

Rents are up

On the upside though, rents and occupancy levels have so far held up well, with its recent half-year results showing the occupancy level stable at 97% and average retail rent up 3% to £12.82 per square foot. It also reported an 8% increase in funds from operations (FFO), although following the issue of 67m new ordinary shares earlier this year, its FFO per share fell 5% to 10p.

NewRiver currently trades at a 14% premium to its net asset value (NAV), but I reckon there's still value in its shares. It has tempting income and growth appeal, with City analysts forecasting 4% dividend growth over the next two years. This should mean the REIT's dividend growth story is not over yet.

7% yield

Meanwhile, in the housebuilding sector, Crest Nicholson(LSE: CRST) is one of the highest yielding stocks in the sector, with a prospective dividend yield of 7% next year.

The South of England housebuilder is often overlooked by its larger rivals, but the company deserves more attention than it gets because of its attractive pipeline of new developments. The company has a promising short-cycle land pipeline and is aiming to deliver 4,000 homes and generate £1.4bn sales by 2019, up from less than 3,000 homes and around £1bn in sales currently.

Looking forward, City analysts expect underlying earnings for this year to climb just 5%, although it is more sanguine for 2018, as it expects earnings growth to pick up to 11%. This may still be an overly cautious outlook given the recent momentum in its forward sales rate and the continued growth in average selling prices. As such, it opens up the possibility of an earnings surprise in the coming year.

But even on those less rosy estimates, Crest Nicholson is attractively valued, with shares trading at a forward P/E of just 7.3, against the sector average of 9.9.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.