The FTSE 100’s Hottest Dividend Picks: British Land Company plc

Today I am explaining why I consider British Land Company (LSE: BLND) to be a top stock for those seeking meaty payout growth.

Solid dividend expansion on the horizon

Against a backcloth of patchy earnings performance, British Land — one of Europe’s largest Real Estate Investment Trusts (or REITs) — has been unable to get dividends rolling at what even the most placid investor as a heart-racing rate. Indeed, the business has lifted the full-year citypayout at a compound annual growth rate of just 1% during the past five years.

Still, a rosier outlook for the domestic property sector is expected to get earnings — and with it dividend expansion — revving higher from this year onwards. British Land is predicted to record a solid 10% earnings recovery in the 12 months ending March 2015, in turn pushing the total payout 3% higher to 27.9p per share. And a further 8% earnings improvement the following year is anticipated to underpin a 4% dividend rise, to 28.9p.

These projections create chunky yields of 3.9% and 4% for 2015 and 2016 respectively, usurping a forward average of 3.2% for the FTSE 100 as well as corresponding readout of 3.6% for the rest of the country’s REITs.

Retail and business sectors bounce

British Land does not boast the most secure dividend cover through to the close of next year, with a figure of 1.2 times predicted earnings falling well short of the widely-regarded security standard of 2 times or above. Still, REITs are required to distribute 90% of their earnings to shareholders, making such lowly figures par for the course.

Indeed, such is the confidence of British Land in the current trading environment that it elected to hike the interim dividend 2.5% to 6.92p per share during this month’s interims.

The business noted that improved shopping conditions helped drive retail lettings and renewals to 334,000 square feet during April-June, with rents agreed at 3.2% ahead of estimated rental values (ERVs). And a 10 basis point rise in retail occupancy, to 98.6% — combined with a 2.5% improvement in footfall, contrasting with the national benchmark’s 0.8% fall — underlined the quality of British Land’s shopping sites.

Meanwhile in the office sector, some 112,000 square feet of space was occupied at 5.6% ahead of ERVs, as improving economic conditions have boosted premises demand in London. With GDP growth set to continue clicking through the gears, I believe that British Land is poised to offer increasingly-lucrative income prospects to investors.

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Royston Wild has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.