When hunting for top-notch dividend stocks, it’s always sensible to look at a company’s track record. Successfully maintaining a streak of continuous payout hikes is no easy feat. So when looking at LondonMetric Property’s (LSE:LMP) 10 years of continuous 7.8% annualised dividend growth, it’s hard not to pay attention, especially with a 6.7% yield.
Of course, past performance doesn’t guarantee future returns. So the question now becomes, can LondonMetric maintain this winning streak and turn into a passive income goldmine?
Stable and predictable cash flows
Despite the lacklustre share price performance in recent years due to weak real estate sentiment, many institutional investors view LondonMetric as a high-quality income investment.
The group’s diverse portfolio of long-term triple-net lease commercial properties creates a highly transparent and predictable income stream. This is actually one of the main reasons why management’s able to allocate capital so effectively, keeping debt in check while delivering continuous dividend hikes.
In fact, of the 13 analysts tracking the stock, 10 currently rate it as a Buy or Outperform, with Barclays even going so far as to place a 225p price target on the stock. That’s roughly 23% higher than where its shares are trading today.
While some important leases are approaching expiration, the general consensus is that these will be renewed. LondonMetric typical deals with large-scale enterprises with tenants like Amazon and Tesco, rather than small businesses, so this assumption is justified. And overall, analysts are projecting the dividend per share to increase to 12.5p in 2026, before climbing to 12.9p in 2027.
On a forward basis, that puts the dividend stock’s future yield at 6.9% and 7.1% respectively.
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What to watch
While the group’s passive income potential looks promising, there are some important risks to keep tabs on. As a real estate business, LondonMetric does have a significant chunk of debt on its balance sheet.
As previously mentioned, management seems to have a firm grip on its finances. However, this does highlight the group’s sensitivity to interest rate changes. A rebound in inflation could prolong the Bank of England’s rate-cutting progress, applying increased pressure for longer. This not only impacts dividend coverage, but also the net asset value of the property portfolio, keeping LondonMetric shares at a depressed valuation.
This could also have further indirect effects. Weaker economic growth could slow the expansion plans of tenants, leading to slower growth for LondonMetric. In an extreme case, it could even result in leases being cancelled or not renewed, adversely impacting occupancy levels and rental cash flows.
The bottom line
LondonMetric Property isn’t a risk-free investment. But the combination of an undemanding valuation, high yield, and impressive track record makes it a dividend stock worth considering, in my opinion. That’s why I’ve already added it to my passive income portfolio alongside other promising opportunities within the real estate sector.
