Despite the stock market reaching new record highs in 2025, there are still plenty of cheap stocks to capitalise on. And in the UK, many of these bargain-basement opportunities come paired with some pretty substantial yields. Perhaps a perfect example of this from my income portfolio is LondonMetric Property (LSE:LMP).
Despite being on track to deliver double-digit net rental income growth, the commercial landlord continues to trade at dirt cheap multiples, with the price-to-earnings ratio sitting at just 11.4. And with management continuing to hike dividends for the 11th year in a row, the yield now stands at more than double that of the FTSE 100 at 6.3% versus just 3.1%.
So should more investors capitalise on this bargain?
Real estate headwinds
There are a variety of factors holding LondonMetric back in 2025. But the biggest is undeniably interest rates. Even with the Bank of England starting to cut rates, property valuations remain compressed. And this impact is only compounded by the higher cost of debt real estate investment trusts (REITs) like LondonMetric carry on their balance sheets.
As such, investor sentiment surrounding REITs is pretty weak right now, with many being reluctant to invest in what’s widely being viewed as a risky stock market sector.
In many cases, this cautious approach is quite sensible. But there are some exceptions. And in my opinion, LondonMetric’s one of them, making its depressed valuation and high yield a screaming buy. Here’s why.
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Bull versus bear
With around £2.7bn in debt & equivalents on its balance sheet against a relatively small cash position, there’s no denying the company’s highly leveraged. And management has been selling off a few of its property assets to try to bring down its overall gearing.
However, at the same time, its property portfolio is currently valued at around £7.4bn, generating £414m of contracted rent each year, largely from enterprise-scale business tenants. That’s more than enough to cover the £115m in interest expenses and the £181m paid out in dividends, combined with £118m to spare.
In other words, even with a high yield, dividends don’t look like they’re at risk of being cut. Having said that, it doesn’t mean LondonMetric shares are a risk-free investment.
In 2027, £498m of its outstanding loans are maturing, followed by £293m in 2028 and £769m in 2029.
As previously mentioned, management’s been selling some underperforming real estate assets to reduce the firm’s exposure to this incoming wave of liabilities. But, most likely, the company will be forced to refinance. And if interest rates are still elevated, this could make the group’s debt burden far more expensive in the future.
The bottom line
Providing its tenants don’t suddenly pack up and break their leases, LondonMetric’s excess rental cash flow generation acts as a powerful buffer against higher debt servicing costs. There’s a bit of client concentration risk, but with the average lease agreement spanning 17 years, the company appears to have industry-leading lease stability.
That’s why, despite the risks, I’ve already added this business to my income portfolio. And it’s not the only real estate stock offering substantial dividends right now.
