This year’s first interest rate cuts are already done and more are expected. I think certain FTSE shares could benefit from this, particularly in the housing and real estate sectors.
Soaring inflation and high interest rates have hurt the sector over the past few years, with stock prices falling across the board. But now with things looking up, there could be great opportunities here.
Two stocks I’m enthusiastic about are Tritax Big Box Reit (LSE: BBOX) and Great Portland Estates (LSE: GPE). And I’m not alone — both were recently tipped as a Buy from major broker Goldman Sachs.
As real estate investment trusts (REITs), 90% of their profits must be returned to shareholders under UK law. This makes them great options for dividend investors looking for a steady income stream.
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Here’s why I think these two shares are worth considering.
Tritax
Tritax Big Box is a REIT that specialises in very large logistics facilities, known as big boxes. It focuses on providing sustainable income through investing in high-quality assets with good growth potential.
With a £4bn market-cap, it’s one of the largest stocks on the FTSE 250. This year it returned to profitability, with earnings forecast to grow 28% a year going forward.
If the growth materialises, it may even join the FTSE 100 in the next listing reshuffle. That would likely result in a big boost for the share price.
It’s been paying and increasing dividends consistently for 10 years, with only a small reduction in 2020 during the pandemic. Naturally, a similar economic crisis could lead to further reductions which is a risk to consider. Moreover, its dividend per share is larger than its earnings per share (EPS), so it has a rather high 83% payout ratio. If that gets closer to 100% it could prompt a dividend cut.
For now, its 4.6% yield’s attractive so I think it would make a great addition to my dividend portfolio. I plan to buy the shares later this month.
Great Portland
Great Portland Estates is another REIT that develops central London properties, including ready-to-fit and fully managed spaces.
The past few years have seen reduced demand for London for office space. As such, GPE has struggled to fill some of its properties. The company reported a £307.8m earnings loss earlier this year but is forecast to return to profitability next year.
In May this year, it announced plans to raise £350m for new acquisitions through a rights issue. It believes the market slump has bottomed out and expects that demand for London office space will increase.
The share price is up 10% in the past six months. However, global markets remain sensitive, particularly in the US where uncertainty about rate cuts has led to slower growth. Should another 2008-style scenario unfold, the property market could take a big hit.
This leaves me concerned about putting too much capital into the sector. While I think GPE exhibits decent growth potential, I will hold off on buying the stock right now. Should I see further signs of demand for Central London office space, I’ll give it another look.
