ASX Dividend Stocks: A reliable 5% yielder (but limited share price upside)

I'm on a mission to uncover some of the ASX's most compelling dividend-paying stocks. The aim is to provide readers with the key data and forecasts to make more informed decisions. Today, we're reviewing BWP Trust.

BWP Trust (ASX: BWP) is widely recognised for its strategic focus in large-format retail properties leased to a single, dominant tenant – Bunnings. This specialisation has positioned the trust as a significant player in the Australian commercial real estate market, known for its stability and long-term capital growth.

Key stats

• Market cap: $2.5 billion

• PE ratio: 12.95

• Net tangible asset per unit: $3.92 as at 31 December 2024

• 12-month performance: +2.5%

• 12-month price range: $3.25 - $3.83

• Trailing 12-month dividend yield: 5.22%

Latest earnings

BWP shares rallied 4.8% on the day of its half-year FY25 results (5 Feb). The result was in-line with market expectations, with profit up 15% year-on-year to $66 million and an interim dividend of 9.2 cents per share. BWP also reiterated its FY25 guidance of ~2% dividend growth.

Morgan Stanley said the result was good from various perspectives, including:

• This marks the first time in several years that the distribution has been fully covered by earnings, rather than relying on reserves

• FY26 now has just 14 lease expiries yet to be extended, down from 19 leases as at Jun-24

• Upgrades for Pakenham (A$14m) and Midland (A$11m) have been secured, with funding rates of 6.5% and 7.5%, respectively—far more lucrative than recent expansions (e.g., Lismore) at just 4%

• Despite Bunnings vacating Northlands, a new tenant has already been secured ahead of the lease expiry

The analysts also noted that BWP has the lowest debt hedging among REIT peers at just 52%, positioning it as a key beneficiary of the rate-cutting cycle.

What's there to like about BWP?

Citi describes BWP as a "stable growing business supported by a strong underlying tenant covenant in Bunnings warehouses." Its revenue growth is driven by a mix of CPI-linked increases, fixed 3% adjustments, and market-related factors.

The analysts highlight a number of tailwinds at play for the REIT, including:

• Like-for-like rental was up 3.3% in the first-half

• Net tangible assets of $3.92 per share places the stock on a share price discount to NTA of around 12%

• Weighed average cost of debt remained relatively stable in 1H25, up just 20 bps year-on-year to 5.43%

• Gearing remains relatively prudent at 21.4%

• Management has become increasingly active in transactions

The analysts modelled for the following earnings over the next two years.

Source: Citi | February 2025

The risks

Although BWP maintains a strong 98.7% occupancy rate and benefits from CPI-linked lease prices, investors should be aware of several risks.

Around 40% of BWP’s leases are set to expire in FY26-27, posing potential vacancy risks. However, Citi believes this is largely mitigated by a high proportion of leases with early option exercises and the limited availability of alternative sites for Bunnings to relocate.

While a portion of BWP’s rental income is tied to CPI, costs have outpaced rental growth over the past four years due to a higher CPI expense profile.

Despite its stable earnings profile, BWP’s share price has remained stagnant over the past six years and is currently trading about 13% below pre-Covid levels. Citi analysts remain neutral on the stock, assigning a $3.40 target price (vs. its 18-Feb close of $3.53).

Corporate Travel five-year price chart (Source: Market Index)