In This Article:
Since first being tipped by Questor in July 2017, Segro has generated a capital gain of 82pc.
While this is undoubtedly encouraging, given that it represents a 72 percentage point outperformance of the FTSE 100 index, the stock’s total return is even more impressive.
The real estate investment trust (REIT), which develops and manages warehouses, has delivered a total return of 114pc over the past seven years.
This works out as an annualised rate of around 12pc and shows that dividends can have a hugely positive impact on total shareholder returns over the long run.
Indeed investors who solely focus on a stock’s capital growth potential may be failing to maximise their total returns.
Dividends have the potential to provide an indication of the financial health of a business, as well as the confidence of its management team in its future prospects.
Shareholder payouts serve a useful purpose for growth and income investors alike.
Despite its share price gain, Segro continues to offer good value for money.
It currently trades only slightly above book value – even after experiencing a 20pc drop in net asset value per share over the past two years that was largely caused by a decline in property values.
Script
Its low valuation suggests there is further capital growth on offer as upcoming interest rate cuts have a positive impact on the economy’s growth rate and in turn on demand for logistics assets.
Given an ongoing lack of supply across the industry due in part to a shortage of suitable land in urban areas and competing demand from the residential sector, this should lead to rising property values over the coming years.
A similar outlook for interest rates in mainland Europe, where 37pc of Segro’s assets are located, bodes well for the firm’s financial prospects.
Its exposure to a broader range of geographies than many of its UK-listed sector peers further improves its risk/reward ratio in this column’s view.
Clearly the exact timing of interest rate cuts in the company’s main geographical market remains a known unknown.
But the Bank of England’s present caution may in Questor’s opinion fail to endure as the full impact of previous interest rate rises are felt following the passing of time lags.
Likewise any loosening in monetary policy will take many months to have a substantial impact on the economy’s growth rate.
This could equate to increased pressure on the central bank to ease monetary policy.
This may mean elevated volatility in asset prices, financial performance and market valuations across the sector over the short run.