A dividend stock with a big yield can be a great way build up long-term income. But we don’t usually want to see a share price slump at the same time. And that’s exactly what’s happened to Land Securities Group (LSE: LAND). Just look at this share price chart, especially over 10 years…
Dividend yield boost
Land Securities is a commercial real estate investment trust (REIT). I find myself increasingly drawn to them at the moment. We’ve had share price weakness across the board, as the property market has been under pressure. That depresses asset values, makes borrowing harder, and raises the general risk of failure. No wonder the market has turned away from the sector.
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But a fallen share price can give a nice boost to the dividend yield, and we’re looking at a forecast 6.9% here. Well, we will be if the dividend is maintained. And that can be another risk for an investment firm facing high borrowing costs.
Cheap borrowings
With first-half results posted in November 2024, we heard that the average cost of debt had risen. In times of high interest, that’s not surprising. And it can definitely be a bit of a worry. But wait, it’s still only 3.5%, up from 3.3% a year previously.
That was at 30 September. And the update said “we expect this to remain stable during the second half“. If we still see a debt cost of 3.5% at full-year time, when the Bank of England’s base rate is likely to still be at 4.5% (or not much less at best), I’ll see that as a big win.
Gross borrowings added up to £3,624m with £2,954m in medium-term notes. And that total is really not far off the trust’s £4.3bn market capitalisation. I suspect it could weigh fairly heavily on the share price for a while yet.
But there was still £2.2bn of cash and undrawn facilities available at the end of September. And the company reckons it could stand a 40% fall in portfolio valuation before its covenants could start to bite. I rate the liquidity as maybe under a bit of pressure, but nowhere near critical.
Retail risk
The trust is big in shopping centers and retail parks. And the rise of online retailing could keep property values low and turn investors away. But it can work both ways. Investors with the money to spend can often buy properties at bargain rates.
In December, Land Securities snapped up 92% of the Liverpool ONE shopping centre for £490m. Of that, £35m is deferred for two years, and the company reckons it should see a 7.5% return on its initial outlay. I think it got a cracking deal.
The shopping centre has a mix of retail, restaurants, bars, and high-profile leasure brands. It’s also home to the Everton Two official retail store (Everton Two, Liverpool One, geddit?). And it’s very busy.
I might be contrarian. But I rate the chances of the death of bricks-and-mortar retail as greatly exaggerated. And I think this share has to be worth considering for REIT investors with long-term income plans.
This post was originally published on Motley Fool
