Land Securities Joins The High Yield Portfolio

Following this year's share price fall, Stephen Bland reckons it's time to add Land Securities to his latest high yield portfolio.

It's the first article for October which means that it's time for the latest selection for my fourth High Yield Portfolio (HYP). My fourteenth share is FTSE100 member Land Securities (LSE: LAND) . Some readers may feel that LandSecs is a bit too similar to existing HYP4 holding Persimmon (LSE: PSN) and I have to admit that there is a little overlap.

The facts are that Persimmon builds residential property for sale, not investment, whilst LandSecs is a commercial property developer and investor, not a build and sell operation. Consequently, although they are both involved in property, I feel that the types of property and the nature of their operations are sufficiently diversified to hold both in a portfolio of this size. I wouldn't though hold both in an HYPLite consisting of five or other small number of shares.

So what's the deal on Land? Well, it has the primary HYP requirement of increasing dividends. In fact, the company states that the dividend has been rising each year for the last twenty five years but I've examined only the last five plus forecasts for the next couple of years all which show good growth. Specifically, for the year to 31/03/03 they paid 35.50p rising to 53.00p for 07. Forecasts for 08 and 09 are 63.44p and 65.70p respectively.

At my buying price of about 1,696p that gives a forecast 08 yield of 3.74%. Above the FTSE100 average but not huge. As the portfolio builds up, shares with lower yields than many of the earlier selections have to be chosen in order to supply diversification, the latter being an absolutely essential security feature of the strategy.

Note that Land has converted to REIT status - Real Estate Investment Trust. One effect of this is that its dividends paid out of rents are known as Property Income Dividends and treated somewhat differently to normal share dividends for income tax purposes though I don't propose going into the details here.

Suffice to say that tax is deducted at source, unlike normal share dividends which suffer no such deduction, but that tax may be recovered in certain circumstances such as where the shares are held in an ISA. In my view a needless additional complication to the system of taxing UK dividends. Why must governments always complexify tax matters?

The reason Land has fallen into HYP territory is that its shares have fallen back substantially from around the beginning of this year, thus driving up the yield. I've picked the share before, it was in both my HYPs 1 and 2 and each time it has so far delivered outstanding returns, doing the business on the primary aim of income and also on the lesser target of capital growth too. Note though that those earlier highly successful selections had no influence on my choice this time, there's no room for sentimentality here.

Incidentally, the large fall in the share price this year has led the share to a nice discount to asset value. Discounts are a common way to value property shares and the best time to buy them is when this figure is as large as one can obtain at purchase. In boom times they can even go to premiums, usually the worst time to go in.

However such considerations are more short term value share stuff than HYP, I just mention it in passing because it don't hurt any, even for HYP purposes, to buy a leading property share like Land at a good discount. But make no mistake, I am buying it for the yield attractions, not the discount. The latter is just the cherry on the icing on a nice cake. In practice, the great likelihood is that a high yield for a good property share will in any case coincide with a good discount because the depressed price serves both those masters.

I've put 295 Land shares into the portfolio at a cost of about 1,696p including costs to make my usual £5,000 investment.  I bought some recently for my own HYP too.

Here's HYP4 to date.

Of the shares shown I own BAT, BP, BT, DSGI, Glaxo, Land, Lloyds, Pearson, Royal Bank, United Utilities.