"We believe these concerns have seen several well-managed trusts with decent underlying property assets fall to underserving discounts to net asset value.
"Whilst dividends have been cut to reflect reduced rental income, they are now well-covered by current rental income and pressure will grow for them to increase for the companies to comply with Real Estate Investment Trust tax rules that require 90 per cent of earnings to be paid out as dividends.
Ediston Property Investment Company, for example, yields 5.5 per cent which is covered 130 per cent by its earnings – we can see further scope for recovery back towards its pre-Covid yield of 8.6 per cent, once there is greater clarity over the return to relative normality.
"We see scope in many of our property holdings for dividends to be restored and then grow, for this to be reflected in an upward revaluation of the portfolios and discounts against these to narrow.”
Iain Barnes, head of portfolio management at discretionary fund house Netwealth, says he prefers to manage portfolios to achieve the highest returns possible, rather than target income and be forced to buy assets that are less attractive but offer a way to hit a specific target.
He nevertheless believes that many of the traditional income sectors will start to perform better in the short-term as the economic recovery takes hold.
David Thorpe is special projects editor of FTAdviser
