The Motley Fool

Why I’d ditch buy-to-let and invest in FTSE 100 dividend stock BAE instead

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.

Screen of various price trends, possibly in FTSE 100
Image source: Getty Images.

While buy-to-let properties have provided relatively impressive income returns in the past, FTSE 100 shares such as BAE (LSE: BA) may offer higher yields in future. Changes to the taxation of buy-to-let properties, alongside an uncertain outlook for the UK economy, may mean the company’s growing dividends hold greater appeal.

Of course, it’s not the only stock with dividend growth potential. Reporting on Wednesday was a FTSE 250 share with what appears to be a bright income future.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Improving prospects

The company in question is property investment business CLS (LSE: CLI). It announced on Wednesday it has exchanged contracts to acquire a freehold property in London for £53.85m. The property comprises of multi-let office space over seven floors, and is fully let to four tenants with a weighted average unexpired lease term of two years to breaks.

The property is being acquired at a net initial yield of 4.5%, and has a substantial reversionary rental upside to deliver an estimated yield approaching 8% through active management. The company expects to undertake a major refurbishment to deliver high-quality space in an improving area with limited supply.

With CLS having a dividend yield of 2.8%, its income appeal may not be obvious at first glance. However, with dividends per share expected to rise by over 7% per annum during the next two years, the stock could become an increasingly appealing income option. With what seems to be a sound strategy, and the potential for capital growth across the UK commercial property sector, its investing appeal could increase over the coming years.

Total return potential

As mentioned, BAE’s dividend investing potential could be more attractive than buy-to-let. The defence company faces the prospect of rising spending across NATO members, including the US. This could catalyse the wider industry after a period of cutbacks and austerity which have created financial challenges for a number of industry incumbents.

As such, BAE is expected to post a rise in earnings of 6% in the current year, followed by further growth of 8% next year. With the stock having a price-to-earnings growth (PEG) ratio of 1.4, it seems to offer a wide margin of safety. Its balance sheet suggests that it has the capacity to continue to invest heavily in new product development, while geopolitical risks in a variety of regions could mean that the defence industry experiences improving prospects over the medium term.

Certainly, there may be risks facing the world economy which could affect stocks which operate globally. However, with BAE having exposure to a variety of regions, it may offer greater diversification than some of its FTSE 100 peers.

With buy-to-let appearing to lose its appeal after those tax changes and the UK economy having an uncertain outlook, the stock could be a relatively attractive income investing opportunity for the long run.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Peter Stephens owns shares of BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.