Land Securities Group (LSE:LAND) is an income stock with a good track record of growing its dividend. For the year ended 31 March 2025 (FY25), it declared a payout of 40.4p a share, 49.6% higher than for FY21.
But over this period, its share price has fallen 21%. This has helped push its yield to 7.4%, which puts it in the top six of FTSE 100 dividend payers (at 17 September).
However, a falling share price could be a sign that investors feel the stock’s overpriced. Others might question the sustainability of its dividend.
Let’s take a closer look to see whether either of these fears is justified.
Special status
The first thing to note is that the stock is a real estate investment trust (REIT). To benefit from certain tax advantages, a REIT must pay at least 90% of its tax-exempt rental income to shareholders by way of dividends each year.
But this doesn’t give any insight into its potential profit. After all, 90% of nil isn’t worth anything. However, in my opinion, I think the group will be able to grow its earnings (and its dividend) over the coming years.
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A diversified portfolio
Much of my optimism comes from the fact that it owns many high-profile properties including One New Change and Liverpool ONE. Its three principal divisions are offices and shops in Central London, shopping centres outside the capital and mixed-use residential developments. These portfolios are valued at £6.7bn, £2.6bn and £0.8bn, respectively.
As further evidence of the quality of its portfolio, when the group re-lets or renews a lease, it’s able to command an average rental uplift of 8%. Also, its contracts provide for index-linked increases. During FY25, its like-for-like net rental income was 5% higher than in FY24.
Despite this, the group looks undervalued to me.
At 31 March 2025, it had a book (accounting) value of £6.53bn. Currently, its market cap is £4.13bn. This implies a 36.8% discount.
And analysts appear to agree that the company’s stock looks cheap. They have an average 12-month price target of 702.5p. This is nearly 29% higher than today’s share price.
Final thoughts
However, the group remains vulnerable to the higher interest rate environment in which we find ourselves. A higher cost of capital makes it more expensive to borrow the money needed to buy more properties and grow. And it squeezes the incomes of its tenants, which might mean they look for cheaper premises or, in extreme cases, go bust.
In addition, the commercial property sector can be sensitive to an economic downturn.
Although the UK economy appears fragile, the quality of the properties owned by Land Securities will give it some protection should the situation deteriorate further. To preserve some headroom, it seeks to keep its loan to value ratio in the “mid-30s”.
And despite dividends never being guaranteed, I see enough evidence — at least in the short term — to suggest that this particular REIT is in good financial shape and able to support growth in its payout. I suspect the fall in the group’s share price probably reflects fears about the UK economy — and the commercial real estate market in general — rather than anything specific to Land Securities. On this basis, I think the stock’s worth considering.
