Forget buy to let! This commercial property stock hasn’t cut its dividend for 58 years

Roland Head looks at two property stocks that could give you a stress-free lifetime income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buy-to-let property is seen by many as the ideal retirement investment, thanks to its ability to provide a long-term income stream.

The problem is that owning and renting your own properties leaves you exposed to unpredictable repair costs, problem tenants, void periods and a tidal wave of paperwork. That’s why I prefer to generate an income from bricks and mortar by investing in good quality property stocks.

One company that’s on my radar is Leeds-based commercial property firm Town Centre Securities (LSE: TOWN), which published its full-year results today. This family-owned business has held or increased its dividend every year since its flotation in 1960. That’s 58 years without a dividend cut.

A long-term buy?

A mix of retail, leisure, office and car park properties helped to increase the group’s EPRA net asset value by 6.8% to 384p per share last year. With the share price at a last-seen level of 260p, the stock now trades at a 32% discount to its net asset value.

Although adjusted earnings fell by 2% to 13p per share last year, the dividend rose by 2% to 11.75p, giving the stock a 4.5% yield at current levels.

Conservative management helped this company to make it through the financial crisis without needing to cut the dividend or raise fresh equity. Over the last two years, the family-led board of directors has maintained this approach by cutting the firm’s exposure to the troubled retail sector from 70% to 55%.

I’m confident in the firm’s long-term prospects. But it has to be said that overall returns are average, rather than outstanding. The business delivered a total property return of 9.4% last year, broadly level with the 9.3% return from the benchmark MSCI (IPD) All Property index.

This stock has also traded at a discount to book value more often than not in recent years. So I don’t see this as a buy signal in itself.

However, Town’s falling share price is widening the valuation discount and pushing up the dividend yield. I’m starting to get interested, and have added the stock to my watch list.

A FTSE 100 landlord with a 5% yield

If you’d prefer to invest in a larger business with a more diverse range of assets, one potential choice is FTSE 100 firm British Land Company (LSE: BLND).

This firm’s portfolio contains a mix of prime London office property and major shopping sites such as Broadgate in London and Meadowhall in Sheffield.

It’s clear that this business is heavily exposed to the retail market. However, the group’s focus on so-called tier 1 sites and its ownership of top-quality London office property should help reduce the risks.

Another attraction is that the group’s debt levels and borrowing costs are very low. I don’t see much risk of a cash crunch here, even if bosses are forced to cut rental rates for retail units.

Too soon to buy?

At about 620p, British Land shares currently trade at a 35% discount to their last-reported book value of 967p per share. There’s also a forecast dividend yield of 5%.

I suspect that these shares could be a decent long-term buy at this level. However, as a value investor I’m only interested in serious bargains. I plan to wait for the group’s half-year results in November before making a decision on whether to invest.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Caucasian man making doubtful face at camera
Investing Articles

My Diageo shares stink! What should I do with them?

Diageo shares are having a negative impact on Edward Sheldon’s investment portfolio at the moment. Should he cut his losses…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

5 things that make me nervous about Barclays shares!

After more than doubling over the past year, Barclays shares are riding high. But the road ahead could be bumpy…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

3 reasons the NatWest share price could keep climbing

The NatWest share price has almost doubled in the last 12 months. But Stephen Wright thinks it might not be…

Read more »

Investing Articles

Billionaire’s hedge fund bets big against the GSK share price!

After years of limping along, the GSK share price has leapt 11% in one month. But one of America's richest…

Read more »

Investing Articles

Now at a 52-week high, can the Scottish Mortgage share price go even higher?

The Scottish Mortgage share price is firing on all cylinders, driven higher by outstanding progress at many of the trust's…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

FTSE shares: the perfect ‘get rich slow’ idea?

As a long-term investor, Christopher Ruane reckons the FTSE 100 could offer him the foundations to create stock market wealth.…

Read more »

Investing Articles

Here’s how an investor in their 30s could aim to turn a £10k ISA into £132,676 by retirement

Christopher Ruane explains how someone with a 30-year investing timeframe could aim to increase an ISA stuffed with blue-chip shares…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have made a lot of investors very rich as they push to new heights. Dr James Fox explores…

Read more »