Image source: Getty Images
I’ve been hunting for a new high-yield dividend stock or real estate investment trust (REIT) for quite a while now. A few months, in fact.
This is because I sold British American Tobacco last year after it made great returns and I kept worrying about this smokeless world management talks about. It sounds great for the health of future generations, but perhaps not so much for the firm’s longer-term profits.
The FTSE 250 certainly has some eye-catching 10%+ dividend yields right now, particularly in the renewable energy sector. However, the whole net-zero debate has become politically polarising amid sky-high energy bills for business and households.
The big savings from cleaner energy might come as late as 2040, according to some sources. Will voters be that patient? Or will net zero be sacrificed in pursuit of higher economic growth? What would that do to the out-of-favour renewables sector?
Nobody knows, but I don’t need the uncertainty hanging around my portfolio for the next few years. I already have enough of that on the growth side with artificial intelligence.
Meanwhile, FTSE 100 banks don’t look as tempting as before, with their share prices up 100%-200% since the start of 2024.
Individual mining stocks are too cyclical and volatile for my liking, so I tend to avoid these. I prefer predictable and boring from my income shares.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Meet the REIT
In the end, I’ve gone with LondonMetric Property (LSE:LMP). The REIT owns various property assets which it rents to blue-chip customers like Primark and Marks and Spencer on long-term contracts. It pays out 90% of rental profits to shareholders as dividends.
There are a few things that attracted me to LondonMetric. One is that it focuses on “mission-critical assets in winning sectors“, particularly logistics, which has a hefty portfolio weighting of 54%.
Here, we’re talking about tenants like Amazon, Next, and FedEx. These are benefitting from the rise of e-commerce, which is driving structural long-term demand for warehousing space.
We tend to see e-commerce as mature nowadays, but it only accounts for around 27% of total retail sales in the UK. I can imagine that reaching 40% or even higher one day.
Despite a volatile interest rate environment, LondonMetric’s average cost of debt is relatively low at 4.1%. And its loan-to-value (LTV) was 35.1% in September, which is considered conservative for the sector.
Finally, LondonMetric has been consolidating the beaten-down REIT space. It snapped up Urban Logistics last year and is reportedly interested in Picton Property Income. So it has been on the front foot compared to many rivals.
Passive income
LondonMetric is forecast to pay 13p per share for FY27 (starting April). At 207p, this puts the forecast dividend yield at almost 6.3%, meaning £20k would buy 9,633 shares offering £1,252 in annual passive income (or £104 a month).
I only invested £1,000 to start, however. And I recognise that interest rate sensitivity remains a risk for REITs, while an economic downturn could see LondonMetric’s occupancy rate fall from today’s 98%.
The stock is down 27% since January 2022. I don’t expect it to reach new all-time highs anytime soon, but I’m hoping for a solid long-term return as rates ideally inch lower and the REIT’s generous dividends compound as I reinvest them.
