2 investment trusts to protect your portfolio if markets crash
London-focused real estate investment trust Derwent London(LSE: DLN) might not be an investment trust in the traditional sense, but its property focus means that it is more defensive than most of its peer group.
Today the company showcased its strengths by announcing that it will pay a special dividend to investors on top of hiking its ordinary payout for 2017, thanks to a strong year for London property.
The trust saw its asset value per share rise by 4.6% in the year to 3,716p, from 3,551p a year before. Net rental income rose 10% to £161.1m and Derwent achieved a total property return of 8%, ahead of the MSCI IPD Central London Offices Quarterly Index of 7.1%. Its property vacancy rate at the end of December was just 1.3%.
Off the back of these results, management has declared a final dividend of 42.4p, up 10% year-on-year, taking its total dividend for the year to 59.7p, up 14% on the year before. In addition to hiking its regular payout, the group also announced a special dividend of 75p per share paid out due to "several value-enhancing transactions" announced back in February 2017.
Commenting on these figures, CEO John Burns said: "The London office market continues to be resilient with good occupier and investment demand." And based on this outlook, I believe that this real estate investment trust is a great asset for any investor who wants to protect their portfolio from further market declines.
Protecting your portfolio
Property, particularly London property, is an extremely defensive asset, and the returns are not correlated to equities, indicating that if markets fall, Derwent shareholders should continue to profit.
Based on today's figures from the company, the shares are currently trading at a price-to-book value of 0.8 and support a dividend yield (including the special distribution) of 4.4%.
Another London property play that I believe can protect your portfolio from additional market declines is Great Portland Estates(LSE: GPOR). Like Derwent, Great Portland wants to return extra cash to investors this year after a successful 2017. The company is planning a special dividend of 94p per share later this year following the £306m sale of commercial properties. Management has decided to go down this route as the group is extremely well capitalised with a pro forma loan to value ratio of only 7%.
A lack of debt, coupled with a balance sheet stuffed full of London property freeholds only reinforces my view that this is a great defensive investment. However, despite the company's defensive nature, it trades at a discount to book value per share with the last reported net asset value being 813p.
At the time of writing, this implies that the stock is trading at a price-to-book value of 0.8, although this calculation does not include any adjustments from the return of value planned.
The special dividend alone is equivalent to a dividend yield of just under 15% for 2017.
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Rupert Hargreaves owns no share 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.