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Investors seeking passive income will find plenty of top dividend-paying blue-chips to choose from today. UK-focused oil explorer Ithaca Energy boasts a trailing yield of 9.4%, while Legal & General pays 7.6%. Cash and bonds struggle to match that income, while shares offer potential capital growth too.
While a high yield needs to be approached with caution as it can often signal a company in trouble, it can also be an opportunity to secure a generous dividend income while waiting for the share price to work some magic as well.
I’d argue both apply to the FTSE 100‘s fourth-biggest yielder, real estate investment trust (REIT) Land Securities Group (LSE: LAND).
Land Securities is great for dividends
Landsec, as it’s also known, must distribute at least 90% of property rental profits to shareholders to qualify as a REIT. That makes it attractive to income seekers.
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Landsec has a terrific trailing yield of 6.82% and a good track record of increasing its dividend per share. Yet long-term investors may be frustrated by its share price. Its flat over the past 12 months and down 15% over five years.
Incredibly, at today’s 607p, the share price is trading at levels seen in 1996, although there have been plenty of ups and downs since.
Landsec owns major shopping centres and retail destinations, alongside prestigious London offices and mixed-use developments. Its fortunes depend on attracting tenants and collecting rents, and the ups and downs of property values.
The 2008 financial crisis hit commercial property hard, as credit dried up, economic activity slumped and property valuations tumbled. Landsec suffered, like the wider sector.
Blue-chip recovery opportunity
The shares slumped again from around 2015 as investors worried about Brexit, online shopping’s assault on traditional retailers, and the future of Britain’s high streets. The pandemic aggravated these problems, while the working-from-home trend threatened demand for offices.
Landsec has since worked to reshape its portfolio, focusing on attractive locations and better-quality properties. But commercial property remains vulnerable to economic weakness and changing tenant demand.
More recently, higher interest rates have piled on the pressure. Property companies often borrow heavily, and rising financing costs eat into profits, while investors demand better returns to compensate for property risks.
Investor patience could pay
The Iran war and renewed inflation fears could force interest rates even higher, further squeezing the commercial property sector. There’s a risk property values will fall, shopping centres struggle and a slowing economy hits office demand. Its modest price-to-earnings ratio of 11.75 offers some consolation, but I wouldn’t anticipate a quick recovery. We may have to wait for interest rates to fall for Landsec to kick on. We’re not there yet.
Landsec is still worth considering for investors happy to reinvest their dividends and wait patiently for a recovery. I’ll also consider fellow REIT LondonMetric Property, which I’ve just added to my Buy list. It boasts the FTSE 100’s third best yield at 7.3%. And here’s another dividend stock we really rate at The Twelfth Magpie…
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Harvey Jones holds shares in Legal & General.
This story originally appeared on Motley Fool
