Forget buy-to-let! I like these property investments that yield up to 13.1%

Unloved property stocks are offering high yields at the moment. Roland Head gives his verdict on two popular companies.

| 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.

Making money from buy-to-let property isn’t getting any easier. In recent years, landlords have had to face high house prices and an increased burden of regulation and tax charges. Average rental returns fell to just 2.1% in the 2018/19 tax year, according to research.

In my view, buy-to-let only makes sense today if you can run a large portfolio of property as a full-time business. For part-time investors with more limited resources, I think property dividend stocks are a much better choice.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Valuations in many sectors are depressed at the moment. And dividend yields can be high — some good quality FTSE 100 REITs are offering yields of more than 6%, as I’ll explain shortly.

Is this 13.1% yield for real?

Let’s start with a real cracker. The NewRiver REIT (LSE: NRR) share price has fallen by more than 50% over the last two years. But this FTSE 250 property group’s dividend has continued to rise, leaving the stock offering a dividend yield of 13.1%.

Is this sustainable? Investors are divided on this point, hence the group’s low share price. The problem is that NewRiver owns a lot of retail property, along with a portfolio of pubs. Retail property is out of favour at the moment as consumers desert the high street and shift their spending online.

The company says its community-focused retail portfolio should be resilient. Retail occupancy has remained fairly strong, falling from 97% in March 2018 to 95.4% in July. Although the net asset value of NewRiver’s property portfolio fell by 6.4% to 261p per share last year, this was no worse than expected.

I suspect the dividend will be cut at some point but, at about 160p, the stock trades at a tempting 37% discount to book value. Overall, I think the shares probably offer some value at current levels. But I think there are safer income options elsewhere, including my next pick.

I reckon this 6% yield is safe

One stock I’ve been buying is FTSE 100 landlord British Land (LSE: BLND). This £4.7bn group owns a portfolio of high-quality London office space and mixed-use developments. It also owns a number of large shopping centres around the UK, such as Sheffield’s Meadowhall centre.

Although this retail exposure isn’t without risk, the company’s share price is already trading at a 43% discount to the group’s net asset value of 905p per share. As with NewRiver, occupancy remains high, at about 97%. Rents have also been fairly stable.

However, British Land’s dividend looks much more affordable to me. NewRiver’s payout was not covered by the group’s cash generation or by its earnings per share last year. By contrast, British Land’s 2018/19 dividend was covered comfortably by the group’s earnings and by its cash flow from operations. In my view, this significantly reduces the chances of a dividend cut in the near future.

Gearing is also much lower at British Land. The group’s loan-to-value (LTV) ratio was almost unchanged at 28.1% last year. By contrast, NewRiver’s LTV rose sharply, from 28% to 37%. This also suggests to me cash could become tight at the smaller firm.

British Land remains one of my top picks in the property sector and I’ve added to my holdings in recent weeks. Although nothing is certain at the moment, I think it’s a good option for investors seeking a reliable 6% dividend yield.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »