2 dividend stocks I’d never sell

Finding stocks you would genuinely be happy to own forever isn’t easy.

One stock that I own and don’t intend to sell is property group Segro (LSE: SGRO). Since restructuring in the wake of the financial crisis, it has focused on owning and developing so-called big box warehouses in prime locations in the UK and Europe.

Good progress in a strong market

The firm’s 2016 results were published on Friday and the figures showed that demand remains strong for logistics warehouses. The group’s net asset value per share rose by 8% to 500p, while adjusted earnings were 7.1% higher at 19.7p. The total dividend for the year rose by an inflation-beating 5.1% to 16.4p per share, giving a yield of 3.3%.

Encouragingly, management is taking advantage of strong market conditions to fine tune the firm’s portfolio and reduce debt. The group’s overall loan-to-value ratio fell from 38% to 33% last year, while total net borrowings fell from £2,193m to £2,091m.

Property prices in this sector are still rising strongly. This is partly due to strong demand from retailers who are reshaping their operations to deal with internet sales growth. In my view, this isn’t a trend that’s likely to reverse.

If Segro’s management remains disciplined in terms of spending and doesn’t lower investment standards, I believe this business should be relatively future-proof.

However, the stock’s current valuation doesn’t allow much room for error. It rose by 3.5% to 500p on Friday, leaving it trading in line with its book value. The risk is that we don’t know how much further the market will rise before it enters the next down cycle. At current levels I’d rate Segro more as a hold than a buy.

This stock offers a tasty discount

FTSE 100 property group Land Securities Group (LSE: LAND) is a good example of a property stock I would be happy to buy today. Land Securities owns a range of prime retail, office and hotel assets in London and elsewhere in the UK.

The value of these properties has fallen slightly over the last year. The firm’s net asset value was 1,408p per share at the end of September, down by 1.8% from 1,434p one year earlier.

Prime London property has fallen in value since 2015. Investors have also been spooked by Brexit. As a result, Land Securities now trades at a 25% discount to net asset value. I believe this could be a buying opportunity.

Although the value of the group’s properties could fall further, the majority of these sites are prime properties of a kind that are never likely to be unwanted, even if lease rates fall. Debt risk is also low, as Land Securities has a loan-to-value ratio of just 22.6%. That’s equivalent to a £22,600 mortgage on a £100,000 house — very low risk.

The group also benefits from long leases, with an average unexpired lease term of 8.9 years. These long leases should provide good earnings visibility and stable cash flows during what could be an uncertain period for the UK.

I believe the combination of a 3.5% yield and a 25% discount to book value are attractive. I’d be happy to buy Land Securities today, with a view to averaging down if the opportunity arose.

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Roland Head owns shares of Segro. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.