With inflation back on the rise, it can be tempting for us investors to put the dividend yield above everything else with increasing appetite.
As I explained fairly recently, however, such a strategy is a surefire way to get burned, and there’s many a FTSE 100 investment trap lurking to separate you from your hard-earned cash. Take British Land Company (LSE: BLND), for example, a share which yields more than 5% for the next couple of years, but one which is loaded with chilling levels of risk.
More bad numbers
Last time I covered the shopping centre operator, I referenced the British Retail Consortium’s most recent monthly footfall tracker which underlined the terrible conditions for retailers. Unfortunately for British Land, things seem to have got worse, not better, since then.
Physical shopper numbers (footfall) dropped 3.5% in the four weeks to May 25, data showed this week, the worst result for six years and reflecting, in part, the continued political and economic uncertainty created by Brexit.
British Land’s share price may have stabilised since the start of June, but I consider this a mere stay of execution. I fully expect it to sink to fresh multi-year lows sooner rather than later, as it battles the structural problem of online shopping as well as those aforementioned cyclical ones, and I’m prepared to look past its big dividend yields of 5.8% and 6% for fiscal 2019 and 2020, respectively.
Fresh financials last month illustrated the extent of the Footsie firm’s problems. The company announced it had swung to a pre-tax loss of £319m for the 12 months to March from a profit of £501m a year earlier. It also slashed the value of its retail assets by 11.1% year-on-year in a move which drove the value of the property portfolio 4.8% lower at group level.
Shop elsewhere
British Land is reducing the number of retail assets on its books. But this will take years to achieve and with the sector in such disarray, it’s concerning just how much it will get for these hived-off properties.
Besides, the business still plans to hold a substantial stake in the UK’s retail sector (affecting around a third of the group’s assets versus 45% as of today). And, of course, there’s no telling how the company’s office blocks and other assets will be hit as the impact of Brexit drags on the domestic economy.
As of pixel time, British Land deals on a forward P/E ratio of 15.5 times, a rating which I makes it far more expensive given the company’s uncertain long-term outlook and the strong chance of heavy earnings downgrades for 2019 and 2020 forecasts. Rather, I reckon a reading in or around the bargain-basement region of 10 times and below would be a fairer reflection of its profits picture.
Right now there’s a galaxy of terrifically-priced dividend shares to be picked up on the FTSE 100. I’m afraid British Land isn’t one of them. In fact it’s a share I think could cause some serious damage to your shares portfolio.
