Looking to boost my passive income, I came across LondonMetric Property (LSE: LMP). Is now a good time to buy some shares with a view to receiving consistent dividends?
Real estate income
LondonMetric is a real estate investment trust (REIT). This means it buys and invests in property, and then rents it out to produce income. From this income, it must return 90% of profits to shareholders. This is one of the reasons I already own a few REITs as part of my holdings to boost my passive income. LondonMetric’s main focus is on retail properties, namely logistics facilities and retail parks, but it owns office and residential buildings too.
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As I write, LondonMetric shares are trading for 173p. At this time last year, they were trading for 212p, which is an 18% drop over a 12-month period. I do understand that many stocks have fallen due to recent macroeconomic issues.
Risks to consider
Soaring inflation and rising interest rates have hampered many stocks, especially in the real estate sector. Investors are worried because rising interest rates is bad news for property firms like LondonMetric as their balance sheets are often leveraged. It currently has approximately £1bn worth of debt on its balance sheet. The problem here is that when interest rates are high, that debt is costlier to service. This can impact performance and returns too.
Another issue LondonMetric could face is that of rent collection. During times of economic volatility, like now, businesses are struggling and could default on their agreements. This could have a material impact on performance and investor returns.
Why I like this passive income stock
To start with, LondonMetric’s core focus, logistics facilities properties, are experiencing rising demand. This is due to the rise of e-commerce and online shopping. In fact, LondonMetric owns and operates differing types of properties, including larger facilities for larger businesses, as well as targeting and catering for smaller firms requiring logistics spaces too. The rise in demand for these properties could boost its earnings and returns.
Next, LondonMetric’s current dividend yield of 5.5% is higher than the FTSE 250 average of close to 2%. Although I understand that dividends are never guaranteed, LondonMetric has good cash flows and, despite the turbulent economy we find ourselves in, seems to have solid fundamentals to ride out any storm at present. Its dividend is covered 1.10 times by earnings. Furthermore, it has increased its dividend for the past eight years in a row.
Finally, LondonMetric’s high occupancy rate is positive. Empty properties can translate into lost earnings and costs to maintain property not in use that is not yielding any income. At present, its occupancy rate stands at over 99%.
Overall, I’m a fan of LondonMetric and would be willing to buy some shares for my holdings when I next have some cash to invest. I believe the shares would boost my passive income through consistent dividends. The fact that it operates in a growing property sector, coupled with a good track record and a seemingly cash-rich balance sheet and business model helped me make my decision. However, I’ll keep a close eye on the impact of the current macroeconomic headwinds.
