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Will this FTSE 100 dividend stock, yielding 6%, be next to cut the payout?

The FTSE 100 has got some fresh wind in its sails in June and, as I type, it’s up 4% in the month to date. Investors are seemingly happy to shrug off ongoing tension around US-Chinese trade talks, political and military turmoil in the Middle East, and the rising prospect of a no-deal Brexit as Boris Johnson circles Downing Street.

Land Securities Group (LSE: LAND) has emerged as one of those gainers, a surprising development in my book given the chances of an economically-destructive withdrawal from the European Union and the shocking blow this would likely deliver to the retail sector.

Things are already looking more than just a tad shaky for Landsec, as it now likes to be known, the largest publicly-listed owner of commercial real estate in Britain. Some 42% of its £13.8bn property empire comprises retail parks, shopping centres, hotels and shops spanning the length and breadth of the country. And it has further exposure to consumers via the retail units that support its workspace assets in London.

Retail on the rack

We all know the intense pressure that UK shopkeepers are under as Brexit uncertainty prompts consumers to keep the pursestrings tightly drawn. Which is just great. It’s not as if the bricks-&-mortar stores are already suffering enough from the relentless progress of e-commerce, right?

Just ask Marks & Spencer and Debenhams how tough conditions are right now, businesses which continue to slash store numbers left right and centre, or Majestic Wine and N Brown who are casting adrift their entire physical estates altogether.

The consequences for the likes of Landsec was laid bare last week when Arcadia Group, the owner of Topshop and Miss Selfridge, successfully lobbied for its landlords to cut rents to help it stave off bankruptcy. The fear now is that others will be quick to line up and ask for the same — media reports suggest Monsoon Accessorize is the latest retail giant to have gone cap in hand to its creditors.

Divi on the block?

It’s not like Landsec is a stranger to such problems, though. Pre-tax losses widened to £123m in the year to March, from £43m previously as asset values fell, and particularly so for its retail properties as rents fell and vacancies increased.

Despite these tidal waves though, the Footsie firm felt confident enough to hike the annual dividend 3.1% for then to 45.55p per share. So can investors expect another uplift in the reward? City analysts certainly think so, and they’re predicting a 49p payout, an estimate which yields a cracking 5.9%.

I’m more than a little sceptical over whether Landsec will meet these hot forecasts, however. Firstly the predicted dividend is covered just 1.2 times by expected earnings, falling well short of the widely-considered safety mark of 2 times and above. And while the company has remained a cash machine of late — free cash flow swelled 66% in fiscal 2019 — debt continues to increase. Its adjusted net debt rose to £3.74bn last year from £3.65bn previously.

Will the company be able to service this in the event of profits continuing to sink, or will it hunker down, reduce dividends and try to ride out the storm? It’s more than possible, in my opinion, and this is why I think investors seeking big dividends should probably avoid it right now.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.