Forget buy-to-let! I’d buy these two FTSE 250 stocks instead to profit from the property market

These FTSE 250 (INDEXFTSE:MCX) companies give investors broad exposure to the UK property market.

| 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.

sdf

Although buy-to-let properties have been a popular way to generate passive income, the increasing uncertainty around the market in the UK has made this more difficult. Although there is still upside to be found, the risk of any one investment underperforming has increased in the past few years. Accordingly, investors should instead look for businesses that have a broad presence in the property market to minimise this risk. Here are two FTSE 250 companies that fit the bill.

Go to the source

Ibstock (LSE: IBST) is the largest clay brick manufacturer in the UK. The value proposition here is relatively straightforward – the UK currently faces an acute housing shortage, most homes are made of brick, so producers of brick should do quite well. Ibstock controls over 25% of the total market, putting it in a good position when it comes to negotiating prices with housebuilders. 

As has been noted elsewhere on the Motley Fool, builders typically do not like to import bricks when they can buy them locally, as they are bulky and heavy. The combination of the national housing shortage, size, and geographical advantage over foreign competition suggests to me that Ibstock is well-positioned for the future. 

IBST current trades at just 13 times earnings, and at a yield of 5.3%. Although this yield is worse than some of the other FTSE 250 stocks out there, it is still good and I would prefer to pay slightly more for a dividend stream that I am confident will continue, than to take a chance on a higher yield that may not pan out. With a 20% return on capital employed last year and an 18% increase in free cash flow between 2017 and 2018 (from £55m to £65m), Ibstock should be able to continue the payouts.

Back a winner

For investors looking to gain exposure to the commercial real estate market, REIT Shaftesbury (LSE: SHB) offers an interesting opportunity. Its holdings are concentrated in London’s West End and include buildings in Covent Garden, Soho and Chinatown. When it comes to real estate, a lot of the time the simplest investment theses are the most compelling. Simply put, I believe that commercial space in central London is always going to be a highly sought-after commodity in the long run, even in the event of a disorderly Brexit. 

Shaftesbury currently trades at a 20% discount to its net asset value, mainly due to its low dividend growth. It has just a 2% yield, which may seem like too little for some income investors. However, I think that this is more than outweighed by the premium status of the assets operated by SHB, while the discounted price provides a good margin of safety. Historically, betting on major financial and commercial hubs like London has been a winning strategy, and one that I would stick with in this case.

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.

Stepan Lavrouk owns no shares mentioned. The Motley Fool UK has recommended Ibstock. 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

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

Analysts have upgraded this FTSE 100 stock to Buy. What should investors do?

Associated British Foods shares have been uninspiring for some time. But is it finally time to consider buying the FTSE…

Read more »

Man changing battery on electric bicycle
Investing Articles

Prediction: in 12 months the sizzling National Grid share price could turn £10,000 into…

It's been another solid year for the National Grid share price and the dividend yield is decent too. So why…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 185% in 3 years, why does the market love this FTSE 250 stock

Over the past three years, this stock has vastly outperformed the FTSE 250. Dr James Fox takes a closer look…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing Articles

Looking for growth, dividends, or value? These 3 ETFs could be smart ideas to consider

Exchange-traded funds (ETFs) provide a way for investors to spread risk without sacrificing the possibility of huge long-term returns.

Read more »

Happy couple showing relief at news
Investing Articles

Is the Rolls-Royce share price fast becoming a joke?

The FTSE 100 engineering titan has done brilliantly in recent years. But our writer wonders whether the Rolls-Royce share price…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

Is there a ‘best age’ to start buying shares?

Christopher Ruane weighs some possible pros and cons of waiting to start buying shares for the first time, versus starting…

Read more »

piggy bank, searching with binoculars
Investing Articles

Is it time to look again at the FTSE 250’s worst performers?

Our writer considers the prospects for two of the worst-performing shares on the FTSE 250, with falls of at least…

Read more »

A handsome mature bald bearded black man in a sunglasses and a fashionable blue or teal costume with a tie is standing in front of a wall made of striped wooden timbers and fastening a suit button
Investing For Beginners

Down over 40% in the past year, I think investors should consider these value shares

Jon Smith points out two value shares that have fallen heavily over the past year but are starting to look…

Read more »