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There aren’t many FTSE 100 dividend stocks with yields above 6%. And ones where there isn’t a major problem with the underlying business are even more rare.
That makes LondonMetric Property (LSE:LMP) an unusual find. It’s a real estate investment trust (REIT) with a 6.5% yield that looks like a reliable source of long-term passive income.
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Leases
LondonMetric owns and leases a huge portfolio of warehouses, convenience stores, and healthcare buildings. And it returns 90% of its rental income to investors as dividends.
The firm’s average lease has 17 years to expiry. Importantly, its use of triple-net leases means tenants are responsible for insurance, taxes, and maintenance.
That gives LondonMetric a lot of protection from rising costs. This is especially important, since long leases mean opportunities to negotiate rent increases are likely to be limited.
As a REIT, the company has to distribute 90% of its taxable income to investors, which can limit its ability to invest for growth. But the firm has other strategies available.
Growth
LondonMetric can’t easily retain its rental income, but it can look to expand and improve its portfolio via mergers and acquisitions. And this is what it has been doing recently.
In the last few years, the firm has made some big moves to restructure its portfolio. This has involved acquiring other businesses and then selling off the weaker properties.
This can be a risky approach – it involves debt and there aren’t any guarantees about sale prices. And that creates a risk that rising interest rates can lead to higher costs.
When it works, though, it can be an effective way for a REIT to build an attractive property portfolio. And that’s what LondonMetric has been doing over the last few years.
Returns
LondonMetric Property isn’t the only FTSE 100 stock with a high dividend yield. But British Tobacco’s business is in decline and Legal & General’s dividend isn’t covered by its earnings.
Neither of these is the case with LondonMetric, so should I buy it for my portfolio? It might be a surprise to hear that my answer is ‘no’ – I think there are better opportunities elsewhere.
A 6.5% dividend yield looks like a lot. But it’s below the FTSE 100’s long-term average annual return and the index as a whole returned over 20% in 2025.
For investors targeting passive income over the next few years, I think this could be a great stock to consider. But while that might be me in the future, it isn’t my ambition right now.
Ups and downs
REITs often face structural challenges when it comes to growth and LondonMetric is no exception. The difficulty comes from having to distribute earnings to shareholders.
This means that expansion opportunities are often limited. So while I think the stock could be a great source of passive income, the total return equation looks less attractive to me.
There’s nothing wrong with this type of business and I might well come back to it further down the line. But for now, I think there are other stocks that are more suitable for my portfolio.
