2 FTSE shares that could benefit from falling interest rates

Could more interest rate cuts send FTSE shares soaring again? Our writer thinks so and details two real estate stocks he likes.

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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.

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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.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

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.

Created with Highcharts 11.4.3Tritax Big Box REIT Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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.

Created with Highcharts 11.4.3Great Portland Estates Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment 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.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT Plc. 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.

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